great!From good to Annual Report 2005-06 Balaji Telefilms Limited Balaji Telefilms

www.balajitelefilms.com A TRISYS PRODUCT, PRINTED BY MAGNA GRAPHICS (INDIA) LTD. Forward-looking statement

In this Annual Report we have disclosed forward-looking information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements - written and oral - that we periodically make, contain forward-looking statements that set out anticipated results based on the management’s plans and assumptions. We have tried wherever possible to identify such statements by using words such as ‘anticipate,’ ‘estimate,’ ‘expects,’ ‘projects’ ‘intends,’ ‘plans,’ ‘believes,’ and words of similar substance in connection with any discussion of future performance.

We cannot guarantee that these forward-looking statements will be realised, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Brand identity 02

What a year at Balaji 03

Chairman’s overview 04

Managing Director and CEO’s review 10

Creative Director’s overview 16

Balaji programmes, 2005-06 24

Management’s discussion and analysis 28 Contents

Balaji’s drivers of growth 34

Operational review 38

Financial review 42

Ratios 48

Risk management 50

Corporate information 54

Board of Directors 54

Directors’ report 56

Corporate governance 60

Financial section 72

1 Brand identity

India’s leading television content brand What a year at Balaji Telefilms Largest entertainment software production house in India Balaji! is the number More than a successful player; credited with having one redefined the business space Enjoys a leading share of India’s small screen content- entertainment providing business Shares listed on the Mumbai and the National Stock software Exchanges Promoted by veteran Indian actor Jeetendra Kapoor, his provider in wife Shobha Kapoor, daughter Ekta Kapoor and son Tusshar Kapoor; promoter family owns 42% of the potentially the Company’s equity second largest television entertainment market in the world

We produced more 41% increase in profit before tax from Rs. 6237 lacs in 23% increase in programming hours from 1720 in 2004- 2004-05 to Rs. 8798 lacs 05 to 2113 in 2005-06 44% increase in profit after tax from Rs. 4129 lacs in Seven new programmes launched 2004-05 to Rs. 5942 lacs

Extension into the non-fiction space We invested more We realised more Investment of Rs. 1090 lacs in three new state-of-the- 26% increase in commissioned programme realisations art studios in Mumbai from Rs. 17.70 lacs per hour to Rs. 22.22 lacs per hour We enriched more We were viewed more 108% increase in the Company’s market capitalisation Presence of 22 of its programmes in the top 25 across to Rs. 120542 lacs (as on 31st March 2006) Hindi cable and satellite channels

We generated more 43% increase in revenues from Rs. 19675 lacs in 2004- 05 to Rs. 28037 lacs

2 3 Chairman’s overview

After two years of a relatively flat performance, I am category and four new shows in the commissioned We expect Hindi to remain the preferred language of “We expect to pleased to report an attractive rebound at Balaji Telefilms category entertainment for India’s masses – within and outside for 2005-06. the country We translated our position as Star’s leading content emerge as the The Company grew its topline by 43%, bottomline by supplier into attractive revenues, and strengthened our We expect Balaji to retain its position as the primary 44% and market capitalisation by 108% during the year spread across more channels on favourable terms Hindi entertainment content Company, having under review, indicating that it had enhanced value for its accounted for 88% of the most viewed programmes in single biggest We extended beyond the small screen to the big screen shareowners across a number of parameters in a 2005-06 comprehensive way. with films like Kya Kool Hain Hum and Koi Aap Sa, beneficiary of capitalising on our established infrastructure I thank you for your continued support over all these years Industry challenges which has helped the Company reach this enviably strong the CAS It might be tempting to believe that the Company’s Industry changes position in the industry. performance improved in line with the general economy; Looking ahead, the biggest change in the business is With regards, environment!” in my mind, the rebound was the result of some proactive going to be the nationwide introduction of the conditional Jeetendra Kapoor, Chairman, Balaji Telefilms, initiatives by the Company in the face of changes in the access system (CAS). This is going to translate into the reviews 2005-06 way we live, work and entertain ourselves. following changes: Jeetendra Kapoor Consider the following: Consumer: Greater influence in demanding niche content Chairman Most consumers are confused with the sharp increase Channel: Gradual evolution from general to niche themes; in the number of channels on offer; this has reduced bouquet pricing to specific pricing; greater emphasis on viewer recall widening reach and influencing advertising rates; greater Most viewers are getting increasingly selective about ability to price in line with the demand for the programme what they want to watch; the general approach in content creation is out Content creator: Closer linkage between content and revenues; greater willingness to work with channels with Most people have a larger number of choices about wider and deeper marketing; better ability to negotiate what to do with their time today; this is making it rates based on viewership; movement from general to difficult to predict viewer habits niche content Most employees are working harder and longer; they can barely catch an episode or two especially if it is early As we see it at Balaji Telefilms, the transition from an in the prime time cycle advertiser-driven revenue to a pay-TV model will only strengthen the market for companies with superior Value game content creation capability. Balaji Telefilms embarked on a value-led response to this evolving scenario in 2005-06 through the following Outlook initiatives: Interestingly, we see Balaji Telefilms emerging as perhaps the single biggest beneficiary of this transition for a We launched three new programmes in the sponsored number of reasons:

4 5 Good to great!

Most businesses targeted a simple turnover growth over the previous year. Balaji Telefilms took only 9 months of 2005-06 to surpass its 12 month turnover of 2004-05.

hat you see in a minute takes us weeks W to conceptualise. So the truthful reality in the business of entertainment software is that production increase is not as simple as pressing a button and collecting products off the conveyor belt.

At Balaji Telefilms, we are proud to report that in a painstaking 2005-06, we increased content production by 19% over the previous year.

6 7 Good to great!

Most businesses continued to fight for shrinking market share. Balaji Telefilms accounted for 22 of India’s top 25 programmes (Hindi cable and satellite channels) in 2005-06.

ook around you, competition is increasing in every business. The pioneers L of yesterday are in a number of instances also evolving into the commodities of tomorrow.

At Balaji Telefilms, we are proud to report a completely different reality. Even after nearly eleven years of presence, we actually increased our share of the market, not just protected it.

So even as our industry evolved from nascent to mature, Balaji Telefilms occupied every single slot between number one and 21 in one of the world’s fastest growing entertainment software market in 2005-06. A domination perhaps unparalleled across most visible businesses in India today.

8 9 Managing Director and CEO’s review

Company reported a 43% increase in its topline and a generated a 18% increase in realisations per hour, the be earned. Let us take the first: the launch of varied 44% jump in its bottomline during the year under review. highest earned by any content provider in our business in distribution platforms - DTH, IP-TV and DSL - is expected “De-risking at a the country and around three times the industry average. to reshape the industry landscape in the form of What were the highlights of the Company’s working in The latter is related to the first: in fact, increase in competition in the last mile, influencing cable and satellite time of growth!” 2005-06? realisations transpired only because Balaji was penetration and subscription revenues. This means that Shobha Kapoor, Managing Director and CEO, Balaji In one word, de-risking. In our business, where consumer instrumental in its channel customers reporting higher the viewer will have the option of selecting specific Telefilms, reviews the financial year 2005-06 preference is influenced by hundreds of variables – it TRPs and in turn, generating incremental advertising channels, enhancing her control on what is beamed into could be something as trivial as a traffic jam – we widened revenues. As a result, both Star Plus and SET (primary her residence. In this respect, we are probably better our exposure across newer channels, geographies, time customers) are today as much dependent on Balaji for placed than our competitors because the TRPs clearly At Balaji, profits have rebounded after a gap of two years slots and formats. While an exhaustive review of our de- their content (and hence advertising revenues) as we are indicate our superiority in this area. and shareholders want to know whether this is the risking process has been explained in the risk on them for purchasing our content. A mutually dependant beginning of the end? Secondly, my understanding is that subscription rates in management section, it would be pertinent to indicate business model! India are already among the lowest in the world, which From a positive perspective, I definitely want to bring to here that the central idea is to leverage the presence of rules out any possibility of a decline; besides, growth in the attention of our shareholders that the year 2005-06 the most successful channel (Star TV) concurrent to Where does the Company expect to move from here? television advertising is expected to outperform Indian represents the beginning of the end of our stagnation. In spreading our risk across other channels as well; our New genres. For years, the Balaji brand has been GDP growth by at least 500 basis points over the coming the report of 2004-05, we had indicated that there would emphasis has also been to ride the strength of India’s associated with soap content; we expect to evolve this to years. So I can say that we have a robust foundation to be a profit upturn for a number of reasons: an increase in prime time slot while opening up other non-evening slots new business lines like animation, non-fiction content, ad build on. programming appetite created by the launch of new as well; while we continue to generate the maximum films and mythological programmes. We are optimistic channels and an increase in our ability to service this revenues from soap content, there is a visible slant in that with India emerging as an attractive outsourcing hub What is that single initiative that will transform this demand through wider recruitment and new studio moving to other genres; similarly, while we are principally for animation, our established infrastructure and industry industry challenge into an opportunity for the Company? commissioning. invested around the Hindi language, there is an internal position will serve as relevant foundation for growth in this There is no one single initiative; we will have to reinvent direction on extending to regional languages. At Balaji, this new area. As it turned out, we invested Rs. 1311 lacs in our the Company across a number of fronts to remain de-risking represents good business; we generated 1090 physical infrastructure and grew our people strength pioneers: for instance, we expect to grow our hours of programming through new genres, channels and What is the biggest challenge facing the Company? during the last two years well before any new business programming hours, fill vacant time slots, pioneer prime languages, which accounted for 14% of our turnover In the emerging conditional access system (CAS) had actually come in. Our foresight and faith in the long- time slots and widen our presence across genres, during the year under review. So evidently, the de-risking environment, our key customers (broadcasters) could well term bullishness of our business was vindicated; the channels and languages. So much for the content side of is replenishing and rejuvenating the Company. prune their programming budgets, affecting our our business. We will continue to invest in assets, realisations and growth. We will counter this challenge equipment and people with a view to reduce costs and What is the single index of the Company’s success in through superior content production for these media. enhance capabilities, resulting in a sustainable 2005-06? enhancement of value for those who own our Company. Good question and here let me give you two indices of our What is the outlook for 2006-07? success in 2005-06 – one, the fact that Balaji accounted I think the entertainment industry in India is at an inflection for 22 of India’s top 25 programmes across the Hindi cable point; two of the biggest influences will be how content and satellite channels; and two, the fact that we will be delivered to the consumer and how revenues will

10 11 Good to great!

Most competitive businesses worked with stable or declining realisations. Balaji Telefilms reported a 18% increase in average realisations during 2005-06.

n non-cyclical businesses, the rule of the day is to make up through volume I what one may lose out by value. At Balaji Telefilms, we are proud to report a ‘double-play’ – increased programming hours and enhanced average realisations.

This transpired because Balaji Telefilms continued to deliver a better product and reinforce the business of its customers during 2005-06 – the second straight year when the Company reported an increase in revenue per hour.

12 13 Good to great!

Most peer businesses endeavoured to retain audience during the predictable hours. Balaji Telefilms got them addicted during the non-usual as well.

here is too much of everything today, except time. T And that’s because even though most people may not have frozen their ‘appointment’ pages to the last detail, they will tell you what they will be doing months from now: ‘with friends on Saturday afternoon’ and ‘with kids on Saturday evening’.

In this difficult-to-find-the-time environment, our most effective achievement is that we induced thousands of people across India to draw a red line across one page on their diaries. Saturdays. By pioneering an absolutely new weekend prime time slot.

For years, most of Balaji’s successful soaps were telecast across four days of the week; it dared to introduce a Friday extension for three of its seven serials on Star Plus - Kasautii Zindagii Kay, Kyunki Saas Bhi Kabhi Bahu Thi and Kahiin to Hoga - which extended programming by one-and-a-half hours a week

Balaji started three new shows in the sponsored category and four new shows in the commissioned category in 2005-06; it commenced new episodes of Hum Paanch and Kasamh Se on Zee TV (after a gap of three years); Kankkana on DD-Chandana; Kyaa Hoga Nimmo Kaa on Star One; Kandy Floss on Sony; Kalyanee on Gemini TV and Pavithra Bandham on Surya TV

In making profitable extensions, Balaji reinforced its longstanding position as India’s largest entertainment content provider with an approximate average of 41 hours of weekly programming

14 15 Creative Director’s overview

In this business of show business, there is nothing more the usual twists and turns of creative storytelling. Sounds “We have temporary than viewer attention. How then do you explain simple but it is not. that Balaji’s serials dominated 22 of the top 25 programmes in Hindi cable and satellite channels (TAM ratings on 31st A disturbing reality is a growing disenchantment with just de-risked Dec 2005)? about everything in life, television episodes included. As a The three magic initials of ‘I’, ‘C’ and ‘D’ – Insight, Creativity creative head, how do you respond to this? the Company and Discipline. When some of our shareholders ask how I agree that this is a disturbing development and let me not brush this under the carpet by saying that we have just the Balaji has been able to retain viewer attention despite the answer to this problem. On the contrary, let me dwell on Creativity is a discipline by creating a challenges, they do so from a position of relative “ why this is a scarier reality in our business than most unawareness – no offence meant – of how the creative wherein we combine an others: if you go through the creative trough and lose your

second-tier process works. marbles for even a fortnight, the audience will perhaps insight into how the viewer

of creative In my opinion, creativity is not something that happens by shift to the next line of interest – could be the iPod, the mindset works with an chance, though that is often a fashionable description of the mall, the latest shopping offer, the newspaper or even ability to produce“ exactly backup!” process. At Balaji, we do not wait for the muse. Creativity is sleep. I mean we are competing in real time with the a discipline wherein we combine an insight into how the largest competitive array you can think of. No business – what he would like to see. Ekta Kapoor, Creative Director, Balaji Telefilms, viewer mindset works with an ability to produce exactly and I mean no business – in the world competes with such outlines the key creative highlights of the what he would like to see. I am greatly convinced that the a wide range of variables like we do, simply because we Company in 2005-06 harder one works at a structured process towards creativity, address the most volatile reality in the world today – the easier one arrives at the right flashes, which is one way human attention. of saying that the harder one works, the luckier one gets. Now let me get back to your question…how do we – or I Does that sound too predictable a reply? Okay, let me put it – respond to this. We think we work harder than anyone in this way: we simply speak to our audience more frequently, our business to ensure that we do not get driven into we map what they are thinking at a particular moment, we oblivion with the switch of a button. And we work harder recognise what they would like to see and present it with at getting to the heart of an idea that is contemporary and

16 17 Creative Director’s overview

thought-provoking. The idea is that if the viewer goes to (Kya Kool Hain Hum, May 2005 and Koi Aap Sa in October physical limitation on what I can do. So much of the bed with the drift of the serial still swirling in her head and 2005). delegation is induced completely out of need. I must be her sleep is delayed by a few minutes by the thought of honest to state that much of the delegation is now also One relevant question here. The job market is more what she saw in the Balaji serial, then there is every induced from a need to grow the organisation. As a result, volatile than ever before in the history of India. How do possibility that she is going to get back the next evening over the last few years, we have created a second creative Our understanding of soap you manage attrition? “ to find out how the serial evolved. tier protected by fixed, inflexible KRAs coupled with content extended us to Good question and here again, let me not brush this adequate intellectual freedom for them to extend well

question under the rug by saying that we have a fix on this This brings us to the next question. It is relatively easy to beyond their stated expertise or basis of appointment. It mature programming, reality and have been completely unaffected. However, I will say

make soap content if that is what you have been doing for works! shows, non-fiction, youth that things could have been worse had it not been for two years. But what happens when a channel suddenly asks things - the fact that we are systems-directed has helped What is your big challenge going into 2006-07? programmes, thriller“ shows you to make a comedy programme, a murder mystery or enhance a sense of pride in the people who work here There was a point in the history of Balaji when the big a reality show? How do you manage success across and commercial filmmaking. that this is indeed a place where they can grow challenge was proving that soaps could be profitable. Then different formats? intellectually and financially; and the fact that we run a there came a time when we needed to demonstrate that The idea is to make things more difficult for ourselves pretty well delegated organisation increases a sense of we could reconcile scale with quality. Now the big priority before competition does so. And here I will say that the control and ownership. is innovation: I expect to launch one of my biggest soaps key to true success is the ability to extract the towards the year-end; I hope to lure urban audiences into fundamentals of success in one format and apply them Back to a related question. Shareholders still want to watching Zee through my new soap Kasamh Se; my across the others. So gradually our understanding of soap know whether Balaji is Ekta and Ekta is Balaji. biggest challenge in 2006 is Kya Hoga Nimmo Kaa on Star content extended us to reality shows, non-fiction, youth This used to be true at one point in the history of our One through which Balaji will enter a new genre of youth programmes, thriller shows and commercial filmmaking Company but when the Company gets bigger, there is a programming. So life is still young and exciting at Balaji!

18 19 Good to great!

In the entertainment software business, companies continued to invest in intellectual capital. Balaji Telefilms made the industry’s biggest investment in physical assets as well.

hen most players in the business of entertainment software continue to invest only in W people, people and people, Balaji Telefilms has moved its competitive edge into the next league by investing in places and equipment as well.

While on the one hand, the Company recognised that the most effective pooling of intellectual capital would translate into value-addition, on the other hand it was convinced that an investment in structural capital would translate into a cost decline.

This investment in studios and equipment helped the Company in two ways: accelerated project turnaround time, induced a more efficient coverage of fixed costs and therefore strengthened the Company’s return on gross block.

An investment of Rs. 1311.17 lacs in captive equipment, studios (three) and editing infrastructure in 2005-06

A corporatisation of internal practices marked by selective outsourcing of property and equipment, disciplined purchase process and vendor rationalisation

A controlled budgeting process based on retrospective costs and prospective volumes

20 21 Good to great!

The television entertainment space is getting bigger and its audience more fragmented. Balaji Telefilms is countering this phenomenon by widening its presence across new genres, channels and languages.

astes and preferences are changing faster today than ever before. T What we watched yesterday is passé; what we will watch tomorrow is still hazy.

This is a busy time for television entertainment content producers. Studying societal trends. Ascertaining how interests might change. And how viewers would like to spend their time.

Balaji embarked on the following:

Youth programming in Kyaa Hoga Nimmo Kaa on Star One

Ventured into reality-based lifestyle programming with TV magazine Kandy Floss on Sony TV which also has an animated co-host

22 23 Balaji programmes, 2005-06

Programme Channel No. of days Specified days Time band (starts) Time band (ends)

Kalyanee Gemini TV 5 Days Mon - Fri 19:30 20:00

Kanyadaana Udaya TV 5 Days Mon - Fri 18:00 18:30

Kumkuma Bhagya Udaya TV 5 Days Mon - Fri 18:30 19:00

Kadambarii Udaya TV 5 Days Mon - Fri 19:30 20:00

Kanavarukaaha Sun TV 5 Days Mon - Fri 22:30 23:00

Pavithra Bandham Surya TV 5 Days Mon - Fri 18:30 19:00

Kavyanjali Surya TV 5 Days Mon - Fri 20:30 21:00

Kankkana DD-Chandana 5 Days Mon - Fri 17:30 18:00

Kyunki Saas Bhi Kabhi Bahu Thi Star Plus 5 Days Mon - Fri 22:30 23:00

Kahaani Ghar Ghar Kii Star Plus 4 Days Mon - Thur 22:00 22:30

K. Street Pali Hill Star Plus 4 Days Mon - Thur 23:30 00:00

Kasautii Zindagii Kay Star Plus 5 Days Mon - Thur 20:30 21:00

Kahiin To Hoga Star Plus 5 Days Mon - Fri 23:00 23:30

Kavyanjali Star Plus 4 Days Mon - Thur 21:30 22:00

Kesar Star Plus 4 Days Mon - Thur 14:00 14:30

Kaisa Ye Pyar Hai Sony TV 4 Days Mon - Thur 20:00 20:30

Kandy Floss Sony TV 1 Day Fri 23:00 23:30

Kasamh Se Zee TV 5 Days Mon - Fri 21:00 21:30

Kyaa Hoga Nimmo Kaa Star One 4 Days Mon - Thur 22:00 22:30

24 25 Balaji content: Prime-time share share of channels in channels

14.00-14.30 17.30-18.00 18.00-18.30 18.30-19.00 Kyunki Saas Bhi Kabhi Kesar Kankkana Kanyadaana Kumkuma Bhagya Bahu Thi Mon-Thurs Mon-Fri Mon-Fri Mon-Fri Kanyadaana Kahaani Ghar Ghar Kii Kaisa Ye Pavithra Bandham Kumkuma Pavithra Bandham K. Street Pali Hill Pyar Hai Kasamh Se Mon-Fri Bhagya Kavyanjali Kasautii Zindagii Kay Kandy Floss Kadambarii 19.30-20.00 20.00-20.30 20.30-21.00 21.00-21.30 Kahiin To Hoga Kadambarii Kaisa Ye Pyar Hai Kavyanjali (Surya) Kasamh Se Kavyanjali Mon-Fri Mon-Thurs Mon-Fri Mon-Fri Kesar Kalyanee Kasautii Zindagii Kay Mon-Fri Mon-Thurs

Kyaa Hoga 21.30-22.00 Kavyanjali 22.00-22.30 Kyaa Hoga Nimmo Kaa 22.30-23.00 Kanavarukaaha 23.00-23.30 Kahiin To Hoga Kalyanee Kankkana Kanavarukaaha Nimmo Kaa Mon-Thurs Mon-Thurs Mon-Fri Mon-Fri Kahaani Ghar Ghar Kii Kyunki Saas Bhi Kandy Floss 23.30-00.00 K. Street Pali Hill Mon-Thurs Kabhi Bahu Thi Fri Mon-Thurs Mon-Fri

26 27 Industry structure decade – the privatisation of India’s television industry, Management’s The health of the Indian entertainment industry is largely increase in the number of players (channels) and a influenced by the economic health of the nation. Given the corresponding growth in the number of entertainment discussion robust growth of the Indian economy – GDP growth in software providers. excess of 8.4% in 2005-06 – the Indian entertainment The result: From a zero presence at the start of the and analysis industry grew in terms of volume (programming hours) Nineties, the private operators (non-government) account and value (programming revenue) during the year under for more than 60% of the industry’s revenues today; there review. Though precise numbers are not available, the is a growing professionalism within the sector reflected in industry is currently estimated at INR 222 billion. corporatisation across service providers. Television is the Indian entertainment industry’s fastest As the television sector moves into a CAS (conditional growing face, accounting for an estimated 62% of the access system) and DTH (direct to home) environment, industry's growth. Films contributed 27%, while the segment is expected to grow even faster to a segments like music, radio, live entertainment and projected INR 371 billion by 2010 (KPMG estimate). interactive gaming accounted for the remaining 11%. Industry drivers Indian entertainment industry, 2005 (Rs. cr) The growth of India’s entertainment sector is driven by a number of factors, which have been discussed in detail in the following paragraphs:

Key drivers

Television 65% Films 28% Live Events 3% Music 3% Radio 1%

Indian television industry With total revenues of INR 139 billion, television is the goliath of the entertainment industry. A couple of Regulation Consumerism Technology important factors have driven its growth over the last Content Pricing Advertising spend

Segment-wise composition of the entertainment industry (INR billion)

Segment-wise break-down 2003 2004 2005E 2006E 2007E 2008E 2009E 2010E

Television 122 139 164 189 228 266 325 371 Film 52 59 69 83 99 114 129 143 Music 10 10 10 11 11 11 12 13 Radio 2 2 3 4 5 6 7 8 Others (live entertainment, 9 11 16 23 30 39 48 60 interactive games, etc.) Gross unadjusted revenues 195 222 261 309 373 436 521 595 Less: overlap (sale of film 7 6 7 8 11 13 16 18 broadcast and music rights) netted off Add: overseas distributors’ 8 8 8 7 8 9 10 11 margin from sale of Indian films Entertainment revenues 196 222 262 309 371 432 515 588 at retail value

Note: The summation of the figures may not match due to rounding off Source: KPMG Research 28 29 India’s entertainment industry is expected to grow from Rs. 22,000 cr in 2006 to Rs. 45,000 cr by 2009.

Subscription revenues between 1995 and 2002, nearly 100 million individuals Pure advertising time for every hour of Regulation What the viewer will pay in the form of subscriptions for joined India’s rich and consuming classes and over the programming in India In India, most segments of the industry have grown to the specific channels he wants to watch will influence the next five, 180 million individuals will enter this segment. their present structure and size in a largely unregulated growth of India’s television industry over the coming On an average, annually 30 to 40 million individuals are environment. However, in the media market, a decade. In the short-term, subscription growth is being joining India’s middle-class – already the largest of its kind consultative process has been used in influencing projected at 14%, primarily from growth in the number of in the world by sheer numbers – translating into a huge regulatory action. Such growth has resulted in the creation cable and satellite households (expected to grow by 8%) spending on mobile phones, televisions, music systems of last mile monopolies in cable television, established and higher realisations. Thereafter, corrections in the and other similar products, following a consumption through informal agreement among the unorganised last regulatory mechanism are expected to pave the way for pattern typically associated with rising income. mile operators. addressability in cable distribution and drive growth in This phenomenon is also accelerating the growth of However, a sustainable growth in the circumstances will digital distribution formats like DTH and other emerging India’s entertainment sector. The growth of India’s be difficult without facilitating regulation. Such changes platforms (IP-TV). As this trend matures, premium entertainment sector is being catalysed by the rural are being necessitated by the following realities: subscriptions for value-added services are expected to market comprising 128 million households, nearly three drive the growth in subscription revenues. This will also Dearth of consumer choice in several segments of the times that of urban India, the consuming class estimated Source: TAM Media Research result in increased demand for content from these new industry value chain, most notably in the last mile of at over 40% of India’s middle-class and accounting for media. cable distribution over 50% of the total disposable income. So far, this Technology segment has remained largely untapped for accessibility Technology will emerge as the entertainment industry Piracy-related revenue and tax leakages across all and affordability reasons, but this is fast changing as a driver into the next decade. In the emerging environment, segments of the entertainment industry boundaries are expected to blur between the result of growing affluence, good monsoons and Need to establish a level playing field for new entertainment, telecommunication and IT segments increased agricultural output. distribution platforms like DTH, broadcasting and digital resulting in the emergence of value-added features for film Advertising growth consumers and revenue for players. INR billion Advertising spending in India is directly linked to the Pricing The television industry will move towards digitisation, growth in GDP. A reasonable estimate of its sensitivity to India has the potential to become an attractive destination which in turn will influence viewership patterns. Success economic growth places it at least 500 basis points over for international broadcasters and production houses - in animation and gaming will be driven by co-productions the GDP growth across the foreseeable future. In view of despite the low income per capita – on account of its large and securing rights over the produced content. This the country’s projected GDP growth, advertising spending population. However, while prices are significantly lower technology-intensive industry will migrate to being at par is expected to grow 12-14% over the next five years to in India than in other parts of the world, volumes have with global standards, not only in terms of technological Declared revenues Undeclared revenues over Rs. 9,400 cr by 2009. been historically restricted by the fragmentation in the advancements but also in terms of the creation of original Source: KPMG Research distribution chain. Subscriber declaration by cable This increase in advertising spending is expected to content. distributors to broadcasters in India has been low, strengthen broadcaster revenues and, in turn, content Consumerism In the entertainment industry, content ownership will resulting in an inequitable distribution of subscription producers’ revenues. Besides, the delivery of content over Over the last few years, disposable income has been influence competitive edge; in such an environment, revenues. According to independent research, the new wireless delivery formats is expected to open up a rising like never before in India; it is estimated that regulatory adaptations will facilitate the industry’s growth. operator-broadcaster split of subscriber revenue in India new avenue for advertising.

30 31 Niche genres are becoming increasingly popular and as a The industry is expected to grow annually by 18% and breach result, more entrants are expected in spaces like animation the INR 500 billion barrier in five years. The trickle-down and business and lifestyle among others. Balaji is already effect of this phenomenon is likely to enlarge the number of proactively exploring a number of these niche areas. television channels, widening the market for a focused content provider like Balaji.

reflects possibly the worst skew in the world. Low considerable action in the foreseeable future due to the technology and regulation. A precise estimation of the Source: Industry Estimates and PwC Analysis. Note: The figures declarations have been attributed to a lack of transparency entry of new direct to home (DTH) broadcasters, internet industry size over the next 5-10 years will require a crystal taken above include only the legitimate sales in each segment. in the last mile distribution end of the business, controlled protocol-based television (IP-TV) and broadcasting ball, given the number of variables involved. However, Revenues from the animation and gaming segments have not been included in the entertainment industry size as these have by 30,000-odd local and national cable operators. services using digital subscriber line (DSL) technologies based on current trends, the industry is expected to grow traditionally been included in the Indian IT and software revenues. etc. These developments will also give broadcasters direct annually by 18% and breach the INR 500 billion barrier in Distribution of revenues (in percentage) access to consumers, providing not just routine content five years. The trickle-down effect of this phenomenon is Projected growth in the Indian Entertainment but also customised value-added services (video on Market Operator Broadcaster likely to enlarge the number of television channels, Industry (Rs. cr) demand). Presently, the distribution of subscription widening the market for a focused content provider like United States 60 40 revenues is skewed towards the cable operator due to Balaji. United Kingdom 63 37 lack of transparency in the declaration of subscribers by the local cable operator to the television broadcaster. The Importantly, the industry is entering its second phase of Australia 65 35 introduction of these new platforms and the consequent growth. This phase will be driven by technology and Japan 65 35 addressability will facilitate a more equitable distribution of influenced by quality infrastructure and digital connectivity penetration. It is the industry’s opinion that this phase will India 83 17 revenues, which should strengthen broadcaster revenues and enhance income for content providers like Balaji. need to be supported by an enabling tax and regulatory infrastructure on the basis of its attractive long-term Source: Media Partners Asia More entrants in niche genres offering additional potential. content variety to the viewer Content trends Niche genres are becoming increasingly popular and as a The size of India’s television software sector, which result, more entrants are expected in spaces like Projected growth - 2009 (Rs. cr) supplies programming content to broadcasters, is animation and business and lifestyle among others. Balaji Source: Industry Estimates & PwC Research currently estimated at INR 28 billion. Its growth has been is already proactively exploring a number of these niche influenced by the following: an increasing number of areas. The proposed introduction of a number of channels augurs programmes on prime time, a swell in the number of hour Liberalised regulatory intervention well for focused content creators like Balaji Telefilms: long weekly programmes, enhanced consumer interest in A beginning has already been made in this direction niche content and an increased global use of Indian Zee: 24-hour comedy channel called Smile TV; spiritual through an amendment of the Telecom Regulatory content libraries. channel called Jagran; now toying with the idea of Authority of India Act. This is expected to deliver launching children and women’s channels It is expected that while mainstream entertainment addressability in the currently fragmented distribution programming will continue to be the bulwark of Indian market, thereby increasing the broadcaster's share of United Television: Launched a children's channel called television, genres like news, sports, children and special revenue and participation which should, in turn, Hungama TV interests (religion, home and health, etc.) will account for strengthen revenues for a content provider like Balaji. Walt Disney: In talks with Star, Sony and ESPN-Star an increasingly important proportion of the content pie. Sports to distribute three of its channels (Playhouse, Outlook Toons and TDC) in 2006 Changes The future of the entertainment industry will be a function Additional distribution platforms of the interplay of each of the above factors – namely Television 65% Films 28% Live Events 4% The last mile of television distribution will see consumerism, advertising spend, content, pricing, Music 2% Radio 1%

32 33 1 Supply chain management incorporation of feedback into content creation Balaji’s drivers At Balaji, the efficiency of its supply chain Timely compliance with deadlines and schedules management has helped marry discipline with creativity Minimal wastage leading to outcome predictability. of growth Quick scalability Conceptualisation Over and above the industry’s growth Just as most product-based companies have a guarded 2 Product management drivers, discussed in great detail in the sampling process initiated by their R&D teams, Balaji The Company faithfully studies audience responses report, there are important reasons why conducts an ideation process, whose feedback influences as a guide to onward content creation. Over the years, this Balaji Telefilms is attractively placed to whether the ideas are extended or rejected. feedback management has been institutionalised: while a capitalise on the growth of India’s broad story direction is defined for a block of 100 Shoot management entertainment industry. episodes, the finer elements are frozen in line with Once the ideation is translated into a script, a production evolving viewer expectations and facilitated by a low schedule identifies hiring, costumes, prop and equipment content inventory. requirements – at pre-negotiated rates. At Balaji, content is customised in response to the Logistics management following sources: Balaji’s logistics management comprises an inventorisation of sufficient episodes, concurrent TRP ratings: This industry benchmark helps ascertain management of serials on its production floors, the quality of the Company’s ongoing performance, involvement of around 25-30 artistes per episode prompting corrective action wherever necessary supported by a director, scriptwriter, cameramen, sound Websites: The Balaji website invites audience views recorder, costume designers, make-up artists, spot boys, Fan clubs: Serial-centric fan clubs provide valuable art directors and light men. feedback As a decisive step in managing these variables, Balaji Word of mouth: The creative team seeks feedback freezes the script well before the first shot can be from its circle of influence clapped. Based on it, a logistics team sets to match Competition: An ongoing study of competing content artistes with the script leading to a shooting schedule. and TRPs to assess audience preferences Thereafter, the various teams take over: equipment is Talent management rotated strategically with the objective of maximised re- 3 Over the years, the Company has consciously use and lead times to delivery are monitored closely from evolved the best people practices from global human scripting to staging, ensuring that the Company takes a resource models, similar to its functional organisational shorter time to shoot an episode than otherwise. structure. Artistes and technicians management Transparency: A transparent link between individual At Balaji, a culture of discipline extends to artistes and effort, team achievement and fair remuneration leading technicians, reflecting in timely availability and attendance. to enhanced motivation Centralised purchase Healthy competition: Competition between various in- A 24-hour single point procurement of all equipment, house production teams to produce the best in-house props and consumables represents the heart of the serial (measured unambiguously through TRPs) Company’s costing efficiency. Since its inception as a Hands-on training: Induction of new recruits onto the strategic business unit, this department has computerised production floor under supervisory guidance; its functions and centralised all shooting requirements performance appraisal based on which job profiles and with the following benefits: a reduced dependency on remuneration packages are enhanced external vendors, a timely material availability, cost Attractive remuneration: Attraction of the best talent savings and optimum product usage. through higher-than-industry pay scales Continuous improvement Pride: Increased retention through a sense of pride The Company continuously invests in cutting-edge among members equipment and progressive practices to enhance programming clarity. A meticulous approach has Over the years, the Company has progressively de-risked translated into the following advantages: itself from people attrition through the following initiatives:

A low episode inventory facilitates the timely Succession planning for every single function

34 35 Increasing recruitment of non-celebrity artistes and professionals, saving fees and maximising availability. Did you know? Maintenance of an extensive database of available talent leading to auditions in the shortest lead time. Balaji has a de-risked business model with a 4 Internal audit control During the year under review, the Company strengthened its strategic dependence on audit process, possibly the only one of its kind in the Asian commissioned programmes. entertainment industry. Covering more than 15 units, the audit function translated into the following: This strategy represents an

The creation of the first tier of cost control interesting balance between The maintenance of a comprehensive log book comprising risk-neutrality and income- episodes, scenes, scene details, shoot duration, equipment enhancement. A significant utilisation, scenes per artiste, attendance report as well as reasons for time overrun or under-performance or non- 86% of the Company’s income utilisation of resources (if any). This led to the creation of a rich is derived from commissioned database that could be accessed for ongoing benchmarking programming. In future, the The creation of a daily MIS report which is submitted to the senior management with a view to identify and prevent Company will increase wasteful expenditure programming hours in this The creation of dockets to standardise all variable costs and segment by diversifying into analyse all variables A methodical hiring clearance system in which the production new genres where the team documents a resource need which leads to an realisation per hour is higher understanding of whether it is available in-house or needs to be than realisations derived from outsourced The synchronisation of various production schedules to sponsored programming. optimise the use of artistes, technicians and hired property The routing of material procurement, based on a quotation process from multiple vendors through the commercial department results in transparent conscious vendor development These initiatives translated into attractive savings through a rationalisation of people resources, an increase in equipment utilisation, greater inter-departmental co-ordination and a restructuring of the accounting role in line with the ABC analysis of their function. 5 Genre mix In the business of entertainment content, sustainable success is derived from an ability to extend one’s mastery in one genre to others, an opportunity for growth and concurrent de- risking. As a future-focused content creator, the Company extended into talk shows, youth programmes and films, diversifying its genre mix even as mass entertainment continued to be the Company’s principal revenue earner.

36 37 Operational Programmes risk in its marketing. As a result, the content is created Balaji had 20 television serials on air aggregating to 85 against a fee with the probability of rate revisions in the episodes a week as on 31st March 2006 compared to 81 event of the programmes becoming successful (as review episodes a week as on 31st March 2005. measured unambiguously by TRPs). These programmes represent an interesting balance between risk-neutrality Programming hours and income-enhancement. Total programming hours increased 23% from 1720 hours Commissioned programming hours increased from 931 in in 2004-05 to 2113 hours in 2005-06, primarily due to the 2004-05 to 1070 in 2005-06; as a proportion of the launch of five new shows in 2005-06 across the Star TV, Company’s turnover, they remained at 84% in 2005-06; Sony TV, Zee TV, Star One and DD-Chandana channels. average realisations from these programmes increased by 25% to Rs. 22 lacs per hour.

Commissioned programmes, 2005-06 Kyunki Saas Bhi Kabhi Bahu Thi Star Plus Kahaani Ghar Ghar Kii Star Plus Kasautii Zindagii Kay Star Plus K. Street Pali Hill Star Plus Kaahiin To Hoga Star Plus Kavyanjali Star Plus Kesar Star Plus Kkusum Sony TV Kaisa Ye Pyaar Hai Sony TV Programming mix Sponsored: In this format, the Company buys telecast Kosmiic Chat Zoom slots and in exchange receives free commercial time, Kandy Floss Sony TV which is then marketed to various advertisers. This is a Hum Paanch Zee TV variable revenue model: if the programme becomes Kasamh Se Zee TV popular, there is an attractive prospect for an upward rate Kyaa Hoga Nimmo Kaa Star One revision. As a result, the Company prudently assumes the risk of content creation and marketing. Programming distribution in 2005-06 Sponsored programming hours increased 32% from 789 in 2004-05 to 1045 in 2005-06; as a proportion of the Company’s turnover, they declined from 16% in 2004-05 to 12% in 2005-06; average realisations from these programmes declined by 16% to Rs. 3.28 lacs per hour.

Sponsored programmes in 2005-06 Kalyanee Gemini TV Kanyadaana Udaya TV Kumkuma Bhagya Udaya TV Kadambarii Udaya TV Kanavarukaaha Sun TV Pavithra Bandham Surya TV Language mix The Company retained its position as one of the few large Kavyanjali Surya TV and successful multi-lingual production houses with an Kankkana DD-Chandana exposure across Hindi, Telugu, Tamil, Kannada and Commissioned: In this format, the Company creates Malayalam (even as Hindi, India’s predominant language, content at the behest of channel owners, assuming no accounted for 13 of 21 serials).

38 39 Language-wise programming matrix (in hours and revenue in Rs./lacs) Language 2005-06 2004-05 Did you know? Revenues Programming hours Revenues Programming hours Hindi 23616.23 1085 16766.23 976 Balaji Telefilms retained its Telugu 1171.58 215.50 1580.02 277.50 numero uno position in India’s Kannada 1174.54 424 830.44 298 Malayalam 587.47 258.50 298.83 112 entertainment content Tamil 376.40 130 89.84 56 industry. Nearly 86% of its Total 26926.22 2113 19565.36 1719.50 programmes were aired during

Channel spread across languages repeat programmes were telecast during the afternoon prime time in 2005-06. The time-slots, it commanded 52% of the total aggregate TRP Company accounted for 79% of the weekday non-prime shows, featuring in the top 100 of the aggregate TRPs during Hindi C&S shows. In 2006-07, the Company intends to enhance its exposure in unoccupied slots and weekend weekday prime time shows prime time programmes for leading satellite channels. (across the top 100 Hindi cable Channel-driving capabilities and satellite shows) and In the entertainment content business, it is not enough to continued to occupy over 50 market content to channel customers; success endures when the Company’s content becomes the driver of the of the top 100 TRP slots. success of its customer channels, making it integral to the sustainability of its audience.

This is precisely what the Company demonstrated yet Time bands again during 2005-06; its content accounted for a high At Balaji, it is important to make programmes for a time- audience retention, reflected in the relevant serials slot where it will be viewed by the widest number of emerging as the top TRP grossers for their respective people leading to the highest TRP and revenue. channels. Balaji has done remarkably well in this regard over the years: 83% of its content was telecast on the evening Channel wise revenues prime time band — 7 p.m. to midnight — across its In the entertainment content business, success is defined various customer satellite channels, showcasing its by an ability to customise programmes for different programmes for the most profitable exploitation of channels and audiences. This is precisely what the content. Company has done over the years: produced programmes for Star Plus, Sony, Zee TV, Sahara, Gemini TV and Udaya The Company retained its position as the undisputed TV. The Company’s channel-wise revenues were as prime time leader accounting for 79% of the aggregate follows: TRP of the weekday prime time shows featuring in the top 100 Hindi cable and satellite shows. When the Company’s

Channel-wise programming mix (in hours and revenue in Rs./lacs)

Language 2005-06 2004-05 Revenues Programming hours Revenues Programming hours Major satellite channels 23499.24 1067.50 16481.97 931 Doordarshan 129.27 57.50 284.25 45 Gemini TV 1171.58 215.50 1580.02 277.50 Udaya TV 1162.27 384 830.43 298 Surya TV 587.47 258.50 298.83 112 Sun TV 376.40 130 89.84 56 Total 26926.22 2113 19565.34 1719.50

40 41 Financial review

2005-06 vs 2004-05 Capital employed Turnover increased by 43% from Rs. 19674 lacs in 2004- 2005-06 2004-05 2003-04 YoY 05 to Rs. 28037 lacs in 2005-06 growth

EBDIT increased by 41% from Rs. 7230 lacs in 2004-05 Average Capital 23179.91 17875.54 12541.18 29.67% to Rs. 10236 lacs in 2005-06. Employed (Balance sheet Profit before tax increased by 41% from Rs. 6237 lacs total -misc exps) in 2004-05 to Rs. 8798 lacs in 2005-06. Average Capital employed increased by 5304.37 lacs in Profit before interest and tax increased by 41% from Rs. absolute terms over the previous year in 2005-06 to Rs. 6255 lacs in 2004-05 to Rs. 8803 lacs in 2005-06. 23179.91 lacs largely on account of the increased surplus. The return on capital employed increased from 40% in Profit after tax increased by 44% from Rs. 4130 lacs in 2004-05 to 44% in 2005-06. The ROACE is a simple but 2004-05 to Rs. 5942 lacs in 2005-06. effective tool that measures how much the company Margins earned out of the resources invested in the business. We are pleased to report that the Company is at a point when The PAT margin of the Company increased from 20.99% every rupee re-invested in the business is expected to in 2004-05 to 21.19% in 2005-06 despite a 47% increase generate significantly higher returns than what in the cost of production of Balaji’s content. PBDIT as a stakeholders would have otherwise earned from percentage of total income remained at 36% in 2005-06, investments made in risk-free financial securities. despite an increase of 44% in the total expenditure of the Company. The capital output ratio increased from 1.13 in 2004-05 to 1.25 in 2005-06, indicating a better use of financial Margins resources. Working capital as a proportion of turnover 2005-06 2004-05 2003-04 declined from 35% in 2004-05 to 18% in 2005-06 indicating better terms of trade with the Company EBDITA margin(%) 36.51 36.75 52.11 customer channels. Cash profit margin(%) 36.49 36.65 52.10 Years 2005-06 2004-05 2003-04 Pre tax profit margin(%) 31.38 31.70 47.76 Return on average 44.15 40.44 74.09 PAT margin(%) 21.19 20.99 31.08 capital employed (%)

42 43 The Company’s turnover increased 43% from Rs. 19675 The Company invested over Rs. 1311 lacs in production and lacs in 2004-05 to Rs. 28037 lacs in 2005-06 post-production equipment and new state-of-the art studios.

Revenues Kyaa Kahein and Kosmiic Chat on Zoom productivity. The employee cost as a proportion of total Captive post-production facilities: The Company income declined from 2.68% to 2.48%, despite an invested in state-of-the-art post-production suites, which The Company’s turnover increased 43% from Rs.19675 Kitni Mast Hai Zindagi on MTV lacs in 2004-05 to Rs. 28037 lacs in 2005-06, largely on increase in absolute terms from Rs. 539 lacs in 2004-05 to not only accelerated the conversion of recorded material Hum Paanch on Zee TV account of an increase in the sale of content and a revision Rs. 717 lacs in 2005-06. into episodes but also enhanced the flexibility to make an ongoing review of the produced content with the in the rates of the content produced by the Company. The Sponsored The Company paid an interest of Rs. 4.64 lacs in 2005-06 objective of revision and improvement. Company generated Rs. 29.16 lacs in revenues from the Kkalavaari Kkodulu and Kaarthika Dipam on Gemini TV compared to Rs. 18.58 lacs in 2004-05. As a proportion of export of content to UAE and USA. Kayamat on Doordarshan net sales, interest declined from 0.09% in 2004-05 to Investments 0.01% in 2005-06. Split: The revenue-wise distribution between Overheads The Company’s investments increased from Rs. 11375 commissioned and sponsored programming in 2005-06 lacs as on 31st March 2005 to Rs. 16239 lacs on 31st In the production of entertainment software, a budgeting Dividend was as follows: March 2006. The Company invested its surplus funds in discipline at the Company was responsible for a strict The Board of Directors considered a dividend of Rs. 3 per Rs. / lacs liquid debt funds with the objective to preserve capital, control on costs. The Company’s budgeting discipline share (of a face value of Rs. 2 per share) as the final liquidate at will and generate a fair return on investments. Programming 2005-06 2004-05 comprised the following priorities: dividend for 2005-06. This worked out to a dividend The Company, as a matter of policy, did not invest in risk- translating into a payout of Rs. 1956.31 lacs and a payout Commissioned 23499.23 16481.98 Profit centre: Each programme was appraised across the based financial instruments. The market value of the of 33% on the post-tax profit of the Company. In view of Sponsored 3456.15 3192.81 creative and commercial filters covering the selection of investments was Rs. 16636 lacs as on 31st March 2006. the Company’s need to redeploy cash and also reward artiste, location and other costs without comprising shareholders, this payout is considered fair and prudent. Balaji continued to depend on content created through the production values. Debtors commissioned category, preserving the segment’s The Company’s terms of trade strengthened during the Project life cycle management: The budgetary discipline Gross block contribution at 84% of turnover in 2005-06. year under review. Receivables declined from 99 days in comprised a holistic perspective of shooting schedules, As a progressive organisation, the Company continued to 2004-05 to 95 days in 2005-06 (equivalent to days of The sponsored category (mainly regional content) scene-wise artiste requirements, ongoing shooting invest in its gross block, marked by state-of-the-art income). This improvement was a vindication of the generated revenue of Rs. 3456.15 lacs in 2005-06 progress and final product delivery to ensure timely equipment and infrastructure. The Company did so with Company’s decision to work only with credible customer compared to Rs. 3192.81 lacs in 2004-05, an increase that delivery. an objective of enhancing the captive availability of channels enjoying a strong revenue and business model resulted mainly due to Balaji’s foray into newer regional infrastructure. Checks and balances: Non-budgeted expenses needed as well a reflection of the buoyancy in industry earnings. channels such as DD-Chandana. verification prior to sanction and disbursement, an Gross block increased from Rs. 5593 lacs in 2004-05 to New programmes started during the year effective check and balance. Rs. 6695 lacs in 2005-06 as the Company invested over Inventories Rs. 1311 lacs in additional production /post-production The Company’s inventory of programmes declined from Commissioned Audit: The Company’s actual expenses were compared equipment and new state-of-the art studios. 44 days in 2004-05 to 15 days in 2005-06 as the two Kasamh Se and Hum Paanch on Zee TV with the budget through a supervisory audit function, feature films carried in the inventory in the previous year Kyaa Hoga Nimmo Kaa on Star One enabling deviations to be corrected in the shortest Over the years, the Company invested in the following: were released during 2005-06. Kandy Floss on Sony TV possible time. Captive sets: This enabled the Company to produce sets in-house and save the cost of hire; it enabled the Company Loans and advances Sponsored As a result of this discipline, total expense as a proportion to enhance the quality of sets in line with varied episode Loans and advances declined from Rs. 1745 lacs in 2004- Kankkana on DD-Chandana of income remained at 72% in 2005-06, similar to 2004- 05. In quantum terms, the Company’s total expenditure and scene requirements; it enabled the Company to re- 05 to Rs. 1705 lacs in 2005-06, comprising lease deposits Kalyanee on GeminiTV increased 44% to Rs. 20108 lacs in 2005-06 compared to use sets whenever required with marginal alterations, for offices and studios. These loans and advances were Pavitra Bandham on Surya TV Rs. 13932 lacs in the previous year. This was in line with resulting in a progressive decline in production costs. considered safe and related to the Company’s business. Programmes that went off air during the year growth in the Company’s business leading to a Captive equipment: The Company de-risked itself from a Commissioned corresponding rise in equipment, employee and dependence on vendor equipment with a captive Kkusum on Sony TV administrative costs. investment in sophisticated digital equivalents (lights, Kaarthika Dipam on Hungama TV Improved employee benefits and incentivisation enhanced sound recording and other technical equipment).

44 45 How Balaji enhanced value for its shareholders during the year under review t Balaji Telefilms, our objective is to enhance value for all those who own shares in our Company. At the Company, we measure the success of our objective through some of the popular measures used by analysts and the financial community and are pleased to report that we more than met expectations through each.

Shareholder value 2005-06 2004-05 2003-04

EPS (Face value Rs.10) 9.15 7.61 10.76

CEPS (Face value Rs.10) 11.31 7.83 12.26

Return on average net worth The sustainability of a Company’s operations is gauged by its return on average net worth (calculated by dividing the profit after tax by the average net worth for the year), which factors in the reinvestment of shareholders’ funds into the business. ROANW strengthened 253 basis points to 25.63% during the year under review.

Years 2005-06 2004-05 2003-04

Return on average net worth(%) 25.63 23.10 44.18

Total shareholders’ return (TSR) TSR improved from 52% in 2004-05 to 111% in 2005-06, indicating that the Company had enhanced value for its shareowners.

TSR reflected the gain delivered to the shareholders by the Company – directly and indirectly (directly in the form of the dividend received by them; indirectly in the form of the capital appreciation registered by the stock during the financial year under review).

TSR was derived from the subtraction of the year-start market capitalisation from the year-end market capitalisation, its subsequent addition to the dividend payout during the year and the division of the subsequent figure by the opening market capitalisation.

The Company reported a stronger market capitalisation and dividend, enhancing the value of the holdings of shareholders in a direct and indirect way.

Years 2005-06 2004-05 2003-04

Total shareholders’ return (Rs. mn) 6446 2277 1669

46 47 Ratios Did you know? Financial performance ratios 2005-06 2004-05 2003-04 2002-03 2001-02 Other income/total income 3.01 2.45 3.34 0.80 2.55 Balaji’s programming hours Cost of production/net sales 55.79 54.07 41.82 42.65 51.17 Overheads/total income 10.48 11.41 9.20 6.65 7.14 jumped from 1720 hours in Interest/total income 0.01 0.09 0.01 0.03 0.04 PBDIT/total income 35.41 35.84 50.37 50.58 40.37 2004-05 to 2113 in 2005-06. PBDT/total income 35.39 35.75 50.36 50.55 40.33 Tax/PBT 33.81 33.45 31.97 35.38 35.35 PAT/total income 20.56 20.48 30.04 30.63 25.65 Cash profit/total income 25.51 25.31 34.24 32.89 26.59 Balaji possesses more studios RONW (PAT/net worth) 23.72 19.37 38.38 53.94 44.51 than any Indian company ROCE (PBDIT/average capital employed) 44.15 40.44 74.09 110.49 86.86 Capital output ratio (total income/average capital employed) 1.25 1.13 1.47 2.18 2.15 working in the field of Total income to gross block 4.32 3.61 4.21 5.35 5.94 entertainment software. Its Total income to working capital 5.63 2.91 4.44 5.94 4.59

Balance sheet ratios complement of 26 modern Debtors’ turnover (days) 95 99 82 69 70 studios engaged in the areas Inventory turnover (days) 15 44 15 9 12 Current ratio 1.90 3.43 3.12 2.63 2.89 of production serves as an Quick ratio 1.69 2.59 2.75 2.39 2.62 effective backward Cash and equivalents/Total assets (%) 66.12 53.33 51.39 45.60 41.75 Asset turnover (Total income/Total assets) 1.13 0.92 1.23 1.71 1.70 integration.

Growth ratios Growth in total income 43.32 9.35 -1.6 65.72 127.68 Growth in net sales 42.50 10.35 -4.12 68.59 125.61 Growth in PBDIT 41.56 -22.19 -2.01 107.67 576.44 Growth in PAT 43.87 -25.47 -3.48 97.87 566.99

Per share ratios (Rs.) Earnings 9.15 7.61 10.76 11.15 5.63 Cash earnings 11.31 7.83 12.26 11.97 5.84 Dividend 3 16 3 3 1 Book value 38.42 32.68 28.03 20.67 12.66

Shareholder-related statistics Dividend per share (%) 150 800 150 150 50 Dividend payout ratio (%) 16.39 105.11 13.94 13.46 8.88 Price-earnings (times) 20.19 11.69 7.85 4.94 14.52 Price/cash earnings (times) 16.34 11.37 6.89 4.60 14.01 Price/Book value (year end) (times) 6.28 3.55 3.10 2.74 6.66 Growth in market capitalisation (%) 107.70 33.40 53.41 -32.71 182.69

Net value-added (Rs./cr) Gross income 280.37 196.75 178.30 185.96 110.30 Add: Other income 8.69 4.94 6.15 1.49 2.81 Corporate output 289.06 201.69 184.45 187.45 113.11 Less: Cost of production 156.41 106.38 74.57 79.31 56.44 Selling and administration expenses 30.30 23.01 16.97 13.32 11.01 Gross value-added 102.35 72.30 92.91 94.82 45.66 Less: depreciation 14.33 9.74 7.74 4.24 1.07 Net value-added 88.02 62.56 85.17 90.58 44.59 Growth% 40.70 -26.55 -5.97 103.12 595.69 To taxes (inclusive dividend tax) 32.49 31.63 29.20 33.02 16.01 To creditors (interest) 0.04 0.19 0.02 0.06 0.04 To investors (dividend) 19.56 82.43 15.45 15.45 5.15 To the Company (retained earnings) 35.97 -51.50 40.52 42.11 23.43

48 49 Risk management

123 Nature of risk Nature of risk Nature of risk Quality risk Growth risk Customer concentration risk Risk explanation Risk explanation Balaji’s content may encounter a There may be no slots or channels Risk explanation lower TRP, impacting its ability to left for Balaji to grow in. An excessive dependence on Star negotiate attractive fees. TV, the Company’s number one Risk mitigation customer, may work against the Risk mitigation The Company intends to increase its Company in the event that the Balaji’s multi-genre content is woven presence across more satellite channel does not perform well. around family-based storylines with channels, time bands (weekend an enduring appeal across ages, programming and the Sunday Risk mitigation genders, geographies and income morning slot), languages (Bengali, The Company is extending its profiles. The Company’s proprietary Tamil, Malayalam), formats (small presence across more television insight into content pace and budget films), prime time extension channels e.g. Zee and Star One even treatment is made to inevitably evoke (from 8 pm – 11.30 pm to 7 pm – 12 as its presence on Star TV continues the desired response of ‘What next?’ am), global IPR opportunities and to be stable and encouraging. This treatment has been reinforced regulatory changes. Mitigation measurement The management of risk does not imply risk priorities. with superior production values Mitigation measurement The Company’s programmes were elimination but prudent risk management. In our (attractive sets, catchy music, Risk identification, particularly of new public mood, The Company increased its beamed across 11 channels during business of content creation this is even more so; attractive locations and fashionable programming hours by 23% in the year. there are a number of risks in it as the end product genres, channel selection, costing and realisations. outfits), enhancing audience 2005-06. must appeal to a customer population without retention. Risk measurement, using established rating models, homogeneity and without direct contact. In view of Mitigation measurement this, our priority is to manage these risks on the one which are independently created 22 of the top 25 programmes across hand and leverage positive possibilities on the other. Risk management policies, covering all inherent risk leading satellite channels and 63 of At Balaji, we categorise risks across two basic types the top 100 shows across the Hindi categories both at the operational or corporate level, - risks that should be taken and risks that should be cable and satellite channels were avoided. We manage and minimize risk through our consistent with the business requirements and Balaji productions; average hourly individual and institutional capability to understand international best practices realisations for commissioned their nature, which leads to relevant, appropriate and programme strengthened from Rs. commensurate responses. Risk reporting to the management 17.70 lacs in 2004-05 to Rs. 22.22 lacs in 2005-06. Risk control at Balaji comprises the following Risk control, reflected in unambiguous initiatives

50 51 The Company entered the reality show genre with Kosmiic Balaji’s superiority is clearly reflected in the fact that Chat and Kandy Floss during 2005-06 and expects to Balaji serials accounted for over 50% of the aggregate reinforce this with non-fiction content programmes like TRP of top 150 Hindi C&S shows. Karmiic Connection and Karbon Copy during 2006-07.

456 789 Nature of risk Nature of risk Nature of risk Nature of risk Nature of risk Nature of risk Language risk Genre risk Over-dependence risk Competition risk Technology risk People attrition risk

Risk explanation Risk explanation Risk explanation Risk explanation Risk explanation Risk explanation Almost 85% of the Company’s New genres (reality shows) are The Company could be overtly Given the Company’s market leading In 2005-06, Balaji invested Rs.13.11cr Due to high attrition of key artistes programming revenues were derived finding acceptance, raising the risk dependent on Ekta Kapoor, its position, any new entrant represents in production assets and equipment. and professionals, the quality of from one language (Hindi), a risk in that the older ones may fall out of Creative Head. Her inability in being competition. Technology obsolescence could entail programmes could suffer suddenly the event that Hindi lost a part of its favour. associated with all programmes replacement and create a cash and without adequate notice. influence or other entertainment could stagger corporate growth. Risk mitigation Risk mitigation squeeze. Risk mitigation software providers capitalise on The Company has been a leading The Company entered the reality Risk mitigation The Company emphasizes script- vernacular opportunities. content producer for the last six Risk mitigation show genre with Kosmiic Chat and Ekta Kapoor involves herself at the years, an index of its ability to The Company invested in digital and centric – as opposed to artiste-centric Risk mitigation Kandy Floss during 2005-06 and conceptualisation stage and the first withstand competition despite an modular equipment (production and – themes, as a result of which, most The Hindi risk is not as pronounced expects to reinforce this with non- few episodes of a serial, following increasing number of industry post-production), a relatively safe of the Company’s serials possess for a number of reasons: Hindi is the fiction content programmes like which the respective creative heads players. insurance against obsolescence. adequate strength to absorb attrition fourth most widely spoken language Karmiic Connection and Karbon Copy take over. The Company has also without their TRPs being affected. in the world, mother tongue for more during 2006-07. Mitigation measurement Mitigation measurement reinforced this delegation with an Mitigation measurement than 180 million Indians and second Balaji’s superiority is clearly reflected A high captive use of equipment and Mitigation measurement aggressive recruitment exercise The Company has professionalised language for another 300 million. in the fact that Balaji serials investment in digital equipments and The Company created approximately across the conceptualizing and the working enviroment with Research indicates that Hindi accounted for over 50% of the state of the art studios represents 22 hours of programming of new scripting disciplines. challenging job content, performance programmes are the most widely aggregate TRP of top 150 Hindi C&S adequate initiative against genre shows during 2005-06. With Mitigation measurement oriented appraisal system, fast watched, accounting for almost 47% shows. obsolescence. new shows planned for 2006-07, The Company’s ability to increase the growth possibilities, hands on viewership and 57% of revenues. revenues from this segment will number of programming hours by trainning and multi level succession Mitigation measurement increase further. 23% to 2113 hours without losing planning. As a result, attrition has The Company increased non-Hindi TRPs indicates its success in growing been way below the average industry programming from 743 hours in its second creative line. standards. 2004-05 to 1027 hours in 2005-06 across the Telugu, Tamil, Malayalam and Kannada languages.

52 53 Designated as the ‘Young Global Leader’ in 2006 by the Core expertise: Paper, engineering files, construction and Forum of Young Global Leaders, an affiliate of the World real estate industries. (N, I) Corporate Board of Economic Forum. Member of the Board’s Audit Committee Core expertise: Concept building, script design and information directors creative conversion (P, E) Tusshar Kapoor Directors Jeetendra Kapoor Member of the Board’s Shareholders’ Committee Balaji Telefilms’ Director since Term ends on: 9th November 2009. Eligible for re- 23rd January 2004. Jeetendra Kapoor Balaji Telefilms’ Chairman since appointment Shobha Kapoor 1st February 2000. A management graduate from Ekta Kapoor Commenced his film career the University of Michigan. Tusshar Kapoor as a junior artiste with the Akshay Chudasama Core expertise: Relevant Akshay Chudasama legendary filmmaker Balaji Telefilms’ Director since experience of the film industry. Dhruv Kaji V. Shantaram. 17th July 2000. (P, E) Pradeep Kumar Sarda Has acted in more than 200 Possesses rich expertise in the Term ends on: 31st July 2007. Eligible for John Yu Leung Lau films and received several prestigious awards. creation of joint ventures, re-appointment Michelle Lee Guthrie Core expertise: Rich network of relationships with commercial / contractual various television channels, artistes, directors and writers. transaction structuring and Company secretary Michelle Guthrie (P, N) documentation. Alpa Shah Balaji Telefilms’ Director since Chairman of Shareholders’ Committee and member of the Core expertise: Corporate laws, mergers and 24th January 2005. Board’s Audit and Remuneration Committee(s) acquisitions, consumer protections, insurance sector Statutory auditors Chief Executive Officer of Star Deloitte, Haskins & Sells privatisation, dispute resolution as well as internet and since November 2003. Snehal & Associates Shobha Kapoor cyber laws. (N, I) Joined News Corporation in Balaji Telefilms’ Director since Chairman of the Remuneration Committee and member 1994. Internal auditors 10th November 1994. of the Board’s Audit Committee. PSK & Associates Previously, a lawyer at Allen, Allen and Hemsley in Sydney Re-appointed as the Managing and Singapore Registered office Director and CEO on 10th Dhruv Kaji November 2004. Besides the Indian companies, she is also on the Board of Balaji Telefilms Limited Balaji Telefilms’ Director since Responsible for the Company’s 25 companies incorporated outside India, like Phoenix C-13, Balaji House, Dalia Industrial Estate, 2nd September 2000. administration and production. Satellite Television and China Network Systems. Opposite Laxmi Industries, A chartered accountant with an Among the few Indian television producers with a Core expertise: Media and technology sector and vast New Link Road, Andheri (West), experience of more than 25 successful track record in a young industry. experience in the pay television industry. (N, NI +) Mumbai – 400 053 years. Core expertise: Production and organisational Tel: +91 22 2673 2275 Financial advisor and management. (P, E) Fax: +91 22 2673 2308 management consultant. John Yu Leung Lau Website: www.balajitelefilms.com Member of the Board’s Shareholders’ Committee Balaji Telefilms’ Director since Was associated with Raymond Ltd. as Finance Director Term ends on: 9th November 2009. Eligible for re- 24th January 2005. appointment and Pinesworth Holding Ltd. (Singapore) as the Executive Regional offices Oversees all financial matters Chennai Director. at Star, including corporate Plot no. 38, K K Salai Core expertise: Major expertise in strategic planning. Ekta Kapoor strategy, management and Kavery Rangam Nagar, Evaluation and guidance in understanding business Balaji Telefilms’ Director since financial reporting, internal Saligramam, Chennai – 600 093 projects in India and abroad. (N, I) 10th November 1994. audit, treasury and tax. Chairman of the Audit Committee and member of the Bangalore Re-appointed the Company’s He also heads the business development division. Board’s Remuneration Committee. Plot no. 2058 Creative Director on 10th He is a member of the Board of Directors of 137 19th Main Road, 2nd Block, November 2004. companies incorporated outside India, like ESPN, Star Rajaji Nagar, Bangalore – 560 010 Heads the Company’s creative Pradeep Kumar Sarda Sports, Phoenix Satellite Television and China Network division. Trivandrum Balaji Telefilms’ Director since Systems. Commenced her career as a Producer and Creative 17th May 2004. Ishara, T.C. 36/589 Core expertise: Identifying and developing growth Director at 19. Perumthanni, Vallakkadavu, P.O. Chairman of the Sarda Group of opportunities. (N, NI+) Trivandrum – 695 008 Her contribution comprises entertainment landmarks in Industries India. Chairman of the Governing P= Promoter; E= Executive; N= Non-Executive; I= Independent, Selected one of Asia’s most powerful communicators by Board of Ecole Mondiale World NI – Non-Independent the Asia Week magazine. + Directorships of foreign companies School, Mumbai.

54 55 Directors' report

Your Directors take pleasure in presenting the twelfth Annual Report and Audited Statement of Accounts of the Company for the year ended 31st March 2006 Financial results Rs. (in lacs) Particulars 2005-06 2004-05 Total income 28,906.57 20,168.95 Profit before interest, depreciation and tax 10,235.74 7,229.51 Less: interest and financial charges 4.64 18.58 Depreciation 1,432.88 974.03 Profit before tax 8,798.22 6,236.90 Provision for tax 2,975.20 2,086.20 Provision for deferred income tax 119.19 (21.08) Profit after tax 5,942.21 4,129.62 Add: excess provision for tax in earlier years 22.07 21.06 Add: balance brought forward from previous year 3,250.28 8,832.40 Appropriations Disposable profits 9,214.56 12,983.08 Proposed dividend 1,956.31 – Interim dividend – 8,242.60 Dividend tax 274.37 1,077.20 Transfer to general reserve 594.23 413.00 Balance carried to balance sheet 6,389.65 3,250.28

Results of operations dividend of Rs. 3 per share (150% on par value of Rs. The business performance during the year has been 2 per share) for the year ended 31st March 2006, commendable. Total revenue increased to Rs. 28,907 amounting to Rs. 1956.31 lacs, as against the special lacs from Rs. 20,169 lacs in the previous year – a dividend of Rs. 8242.60 lacs for the previous year. growth of 43.3%. Operating profit increased by 39% Dividend, if approved at the Annual General Meeting from Rs. 6735.35 lacs to Rs. 9366.32 lacs Profit after will be paid to all members whose names appear on tax increased to Rs. 5942.21 lacs from Rs. 4129.62 the Register of Members as on 18th August 2006. lacs representing a growth of 43.89%. The register of members and share transfer books A detailed discussion on the business performance is will remain closed from 11th August 2006 to 18th presented in the Management's discussion and August 2006, both days inclusive. analysis section of the report. In respect of shares held in electronic form, the Dividend dividend will be payable on the basis of beneficial Your Directors are pleased to recommend a final ownership as per details furnished by National

56 57 Securities Depository Limited and Central Depository Mr. Akshay Chudasama and Mr. Pradeep Sarda retire from Conservation of energy and technology applied them consistently and made judgments and Services (India) Limited for this purpose. Dividend income the Board by rotation and being eligible, offer themselves absorption estimates that are reasonable and prudent so as to give is exempt from tax for shareholders and the domestic for re-appointment. The Company is not engaged in manufacturing activities a true and fair view of the state of affairs of the companies are liable to pay a dividend distribution tax at and as such, particulars relating to conservation of energy Company at the end of the financial year and of the the rate of 12.50%, plus a surcharge at the time of Auditors and technology absorption are not applicable. However, profit or loss of the Company for that period M/s. Deloitte, Haskins and Sells, Chartered Accountants, distribution. Accordingly, the Company has provided for an in studios and post production facilities etc. adequate that they have taken proper and sufficient care for the Mumbai and M/s. Snehal & Associates, Chartered amount of Rs. 274.37 lacs towards dividend distribution measures are being taken to conserve energy as far as maintenance of adequate accounting records in Accountants, Mumbai, the Joint Auditors of the Company tax on the final dividend of Rs. 19.56 cr recommended by possible. accordance with the provisions of the Companies Act, retire at the ensuing Annual General Meeting and being the Board on 9th May 2006. 1956 for safeguarding the assets of the Company and eligible, offer themselves for re-appointment and have Foreign exchange earnings and outgo for preventing and detecting fraud and other Directors also confirmed their eligibility and willingness for The particulars regarding foreign exchange earnings is irregularities Ms. Liza Newnham and Ms. May Oh had been appointed appointment, if made, as Joint Auditors of the Company Rs. 79.16 lacs and the outgo is Rs.139.66 lacs as given in that they have prepared the annual accounts on a going as alternate Director to Ms. Michelle Guthrie and Mr. John and certifying that if they are appointed as Auditors for the point 13 in Schedule 16 (Statement of Significant concern basis Lau, nominee Directors from Asian Broadcasting FZ LCC, year 2006-07, their appointment will be within the limits Accounting Policies and Notes forming part of Accounts) and during the year they ceased to be alternate Director prescribed under Section 224(1B) of the Companies Act, of this report. Acknowledgements on return of the original Director to the state of 1956. Your Directors wish to place on record their appreciation Maharashtra. Fixed deposits of the contribution made by the employees at all levels, The Company has not accepted any fixed deposits and, who, through their competence, hard work, solidarity, as such, no amount of principal or interest was cooperation and support, have enabled the Company to Particulars of employees outstanding as of the balance sheet date. achieve the consistent growth. Particulars of employees, as required under the provisions of Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975, are set out as under: Corporate Governance Pursuant to Clause 49 of the Listing Agreement with the On behalf of the Board of Directors, Name / Gross Qualification Experience Date of Age Last Stock Exchanges, a separate section titled Corporate Designation remuneration in years commencement employment Governance has been included in this report. The (Rs. in lacs) of employment held Auditors' certificate on compliance of Clause 49 of the Shobha Kapoor 239.10 N.A. 12 10th November 1994 57 N.A. Listing Agreement by the Company is annexed to this Managing Director & CEO report. Jeetendra Kapoor Ekta Kapoor 239.10 B. Com 12 10th November 1994 31 N.A. Chairman Creative Director Directors' responsibility statement The Directors confirm: Note: 1. Gross Remuneration comprises salary, commission, allowances, performance remuneration, Company's contribution to Provident Fund and taxable value of other perquisites. that in the preparation of the annual accounts, the Place : Mumbai 2. The nature of employment of Ms. Shobha Kapoor and Ms. Ekta Kapoor is contractual and terminable by twelve months' notice applicable accounting standards have been followed Date : 9th May 2006 for each. that they have selected such accounting policies and 3. Ms. Shobha Kapoor and Ms. Ekta Kapoor are related to each other.

58 59 Corporate governance

The names of members of Board of Directors, their attendance at Balaji Telefilms Board meetings and the number of their other directorships are set out below: Name of the Director Attendance No. of Directorships and Committee particulars memberships / Chairmanship Board Last Other Committee Committee meetings AGM Directorships Memberships Chairmanships Mr. Jeetendra Kapoor (P, N) 4 Present 3 2 1 Ms. Shobha Kapoor (P, E) 4 Present 3 1 0 Ms. Ekta Kapoor (P, E) 3 Not Present 1 1 0 Mr. Akshay Chudasama (N, I) 3 Not Present 4 1 0 Mr. Dhruv Kaji (N, I) 3 Present 2 + 1 1 1 Mr. Tusshar Kapoor (P,E) 4 Present 2 0 0 Mr. Pradeep Sarda (N,I) 1 Present 19 1 0 Ms. Michelle Guthrie (N,NI) 2 Not Present 2 + 32 0 0 Mr. John Lau (N,NI) 2 Present 0 + 142 0 0 Ms. Liza Newnham (N, A) 2 N.A. 1 0 0 Ms. May Oh (N, A) 1 N.A. 1 + 2 0 0

P = Promoter; E = Executive; N = Non-executive; I – Independent; NI – Non-Independent; A- Alternate + Directorships of foreign companies

Audit Committee Members : Mr. Akshay Chudasama Mr. Jeetendra Kapoor Terms of reference alaji Telefilms Limited is committed to strong Ensure that the Board, the employees and all Mr. Pradeep Sarda The Audit Committee provides direction to the audit corporate governance and believes in its concerned are fully committed to maximizing long- and risk management function in the Company and Secretary : Ms. Alpa Shah indispensability in investor protection. The Company’s term value to the shareholders and the Company monitors the quality of internal audit and management compliance with the Corporate Governance Code in Invitees : Representatives of statutory audit. The responsibilities of the Audit Committee terms of Clause 49 of the Listing Agreement with the Composition of the Board auditors and internal auditors include overseeing the financial reporting process to Stock Exchange, Mumbai and National Stock Exchange The Board currently has nine members, of whom three Mr. V. Devarajan, Chief Financial ensure proper disclosure of financial statements, of India Limited is given hereinbelow: are Executive Directors. The Board has a non-Executive Officer recommending appointment / removal of external Chairman. One third of the strength of the Board of Meetings and attendance auditors and fixing their remuneration, reviewing the Company’s philosophy on Corporate Directors comprises Independent Directors. The Board The details of meetings held during the year, and the annual financial statements before submission to the Governance functions either as a full Board or through Committees. attendance thereat are as follows: Board, reviewing adequacy of internal control systems The Company’s philosophy on Corporate Governance is Policy formulation, setting up of goals and evaluation of and adequacy, structure and staffing of the internal Dates of meetings: 20th May and 27th October in as under: performance and control functions vest with the Board, audit function, reviewing findings of internal 2005 and 31st January in 2006. Ensure that quantity, quality and frequency of financial while the Committees oversee operational issues. investigations, discussing the scope of audit with and managerial information, which management Attendance Four meetings of the Board of Directors were held external auditors. shares with the Board, fully places the Board during the year – on 20th May, 4th August and 27th Name of the No. of meetings members in control of the Company’s affairs The terms and composition of the Audit Committee October in 2005 and on 31st January in 2006. The Director attended Ensure that the Board exercises its fiduciary conform to the requirement of Section 292A of the maximum time gap between any two meetings was not Mr. Dhruv Kaji 3 responsibilities towards shareholders and creditors, Companies Act, 1956. more than four calendar months. None of the Directors thereby ensuring high accountability Mr. Akshay Chudasama 3 of the Company held committee membership of more Composition Ensure that the extent to which the information is than ten committees nor committee chairmanships of The composition of the Audit Committee is as follows: Mr. Jeetendra Kapoor 3 disclosed to present and potential investors is more than five committees across all companies in Chairman : Mr. Dhruv Kaji Mr. Pradeep Sarda 1 maximised which the person was a Director.

60 61 The statutory auditors and internal auditors of the The committee oversees share transfers and monitors than the commission @ of 2% each, of the net profits of approved by the shareholders at the Annual General Company are invitees to the Audit Committee Meetings. investors’ grievances. The committee reviewed the the Company. Meeting held on 28th August 2003. The Non-executive The Audit Committee holds discussions with the statutory shareholder grievances and the share transfers for the Directors are paid remuneration having regard to the No remuneration was paid to Non-Executive Directors auditors on “Limited Review” of the quarterly, half yearly year and expressed satisfaction with the same. The prevalent practice in the Industry and commensurate with apart from Directors’ sitting fees and commission at fixed accounts, yearly audit of the Company’s accounts and committee also noted the shareholding in dematerialised their experience. Besides the above remuneration, there rate of 0.90% to Chairman and 0.10% to all other Non- other related matters. mode as on 31st March 2006 being 99.91%. is no pecuniary relationship or transactions by the Executive Directors with a ceiling of Rs. 2 lacs each, as Company with Non-Executive Directors. The Company has reappointed PSK & Associates, Remuneration Committee Chartered Accountants as internal auditors to review the internal control systems of the Company and to report Terms of reference Details of the remuneration to the Directors for the year ended 31st March 2006 thereon. The report of the internal auditors is reviewed by The Committee is entrusted with the role and Name Designation Remuneration for the year 2005-06 (in Rs.) No. of shares responsibilities of approving compensation packages of the Audit Committee. Salary Commission Sitting Employer Total held by Managing Director/ Whole Time Director, reviewing and fees contribution Non- Shareholders’ Committee approving the performance based incentives to be paid to to Provident executive the Managing Director/ Whole Time Director and Terms of reference Fund / Gratuity Directors reviewing and approving compensation package and The functions and powers of the Shareholders’ Ms. Shobha Managing 5,220,000 18,330,000 – 360,000 23,910,000 N.A. incentive schemes of senior managerial personnel. Committee include approval / rejection of transfer / Kapoor Director & transmission and rematerialisation of equity shares, issue Composition CEO of duplicate certificates and supervising of the operations The composition of the Remuneration Committee is as Ms. Ekta Creative 5,220,000 18,330,000 – 360,000 23,910,000 N.A. of the Registrar and transfer agents and also maintaining follows: Kapoor Director investor relations and review and redressal of Chairman : Mr. Akshay Chudasama Mr. Tusshar Director 1,104,000 – – 72,000 1,176,000 N.A. shareholders / investors’ grievances / complaints. The Members : Mr. Dhruv Kaji Kapoor details in this respect are given in the Shareholder Mr. Jeetendra Kapoor Information section of this report. Mr. Jeetendra Non-executive – 8,248,000 50,000 – 8,298,000 5,567,500 Secretary : Ms. Alpa Shah Kapoor Chairman Composition Mr. Akshay Independent – 183,200 35,000 – 218,200 – The composition of the Shareholders’ Committee is as Meetings and Attendance Chudasama Director follows: The details of meetings held during the year, and the Chairman : Mr. Jeetendra Kapoor attendance thereat are as follows: Mr. Dhruv Independent – 183,200 35,000 – 218,200 – Kaji Director Members : Ms. Shobha Kapoor Dates of Meeting: 20th May 2005 Mr. Pradeep Independent – 183,200 15,000 – 198,200 – Ms. Ekta Kapoor Attendance Sarda Director Secretary : Ms. Alpa Shah Name of the Director No. of meetings attended Ms. Michelle Director – 183,200 20,000 – 203,200 – Meetings and Attendance Mr. Akshay Chudasama 1 Guthrie The details of meetings held during the year, and the Mr. Dhruv Kaji 1 Mr. John Lau Director – 183,200 20,000 – 203,200 – attendance thereat are as follows: Mr. Jeetendra Kapoor 1 Ms. Liza Alternate – – 30,000 – 30,000 – Newnham Director Dates of Meetings – 4th April, 17th June and 4th Remuneration policy and details of October in 2005 and 6th January in 2006 Ms. May Alternate – – 15,000 – 15,000 – remuneration paid Oh Director Attendance The remuneration of the Directors is decided by the Board Name of the Director No. of Meetings attended of Directors as per the remuneration policy of the The agreements with Managing Director and the Creative Director is for a period of five years. The nature of employment Company within the ceiling approved by shareholders. of Ms. Shobha Kapoor and Ms. Ekta Kapoor is contractual and terminable by twelve month’s notice in writing. If the tenure Mr. Jeetendra Kapoor 4 of the office of Managing Director or Creative Director is terminated before expiration of the agreements, the severance fees No fixed component and performance linked incentives Ms. Shobha Kapoor 4 would be amount equivalent to the remuneration for unexpired residue of the tenure or for three years, whichever is shorter. have been paid or is payable to the Managing Director and The appointment of the Executive Director is for a period of three years and is terminable by three month’s notice in writing. Ms. Ekta Kapoor 4 the Creative Director for the period under review, other

62 63 Annual General Body Meetings General shareholder information The details of Annual General Meetings held in the last three years are given below: 1. Date of book closure 11th August 2006 to 18th August 2006 (both days Annual General Meeting Day, Date Time Venue inclusive). 9th Meeting Thursday, 3:30 p.m. ‘The Club’, 197, D N Nagar, Andheri (West), 21st August 2003 Mumbai – 400 053. 2. Date, time and venue of the 18th August 2006 at 3:30 p.m. at ‘The Club’, 197, DN 10th Meeting Friday, 3:30 p.m. ‘The Club’, 197, D N Nagar, Andheri (West), Annual General Meeting Nagar, Andheri (West), Mumbai 400 053. 27th August 2004 Mumbai – 400 053. 11th Meeting Friday, 3:30 p.m. ‘The Club’, 197, D N Nagar, Andheri (West), 3. Dividend payment The Board of Directors has recommended final dividend 26th August 2005 Mumbai – 400 053. of 150% for the year ended 31st March 2006. The dividend will be paid within the stipulated number of No special resolutions were put through postal ballot till last year. days once it is approved at the AGM. Disclosures Re-appointment of Directors 1. Related parties’ transactions The individual details of Directors seeking re-appointment 4. Listing on Stock Exchanges (i) The Stock Exchange, Mumbai None of the transactions with any for the related parties at the ensuing Annual General Meeting of the Company Phiroze Jeejeebhoy Towers, were in conflict with interest of the Company. are provided in the explanatory statement accompanying Dalal Street, Mumbai – 400 001 Transactions with the related parties are disclosed in Note the notice of Annual General Meeting. Tel: +91-22-22721233/34, No. B - 7 in Schedule 16 “Notes on Accounts” annexed to Fax:+91-22-22721919/3027 the Financial Statements of the year. Means of communication (Stock Code – 532382) The Company believes that all stakeholders should have 2. Compliances by the Company (ii) National Stock Exchange of India Limited access to adequate information, regarding the Company’s The Company has complied with the requirements of the Exchange Plaza, 5th floor, Plot No. C/1, G Block, position to enable them to accurately assess its future stock exchanges, SEBI and other statutory authorities on Bandra Kurla Complex, Bandra (East), potential. In accordance with the applicable guidelines / all matters relating to capital markets during the last three Mumbai – 400 051. listing agreement with the stock exchanges, all years. No penalties or strictures have been imposed on Tel: +91-22-26598235 / 36, information which could have a material bearing on Balaji the Company by the stock exchanges, SEBI, or other Fax: +91-22-26598237/38 Telefilms share price is released at the earliest. statutory authorities relating to the above. (Stock Code – BALAJITELE) 3. Though there is no formal Whistleblower policy, the The Company’s financial results were published in Company takes cognizance of complaints made and Business Standard and Sakal (regional daily). The financial 5. Listing fees Paid for both the above Stock Exchanges as per listing suggestions given by the employees and others. Even results and official news releases were displayed on the agreements anonymous complaints are looked into and whenever Company’s web site www.balajitelefilms.com. No formal necessary, suitable corrective steps are taken. No presentations were made to the institutional investors and 6. Listing on Stock Exchanges outside India Not applicable employee of the Company has been denied access to the analysts during the year under review. The Company sent Audit Committee of the Board of Directors of the a copy of its half-yearly results to each shareholder. 7. Registered office of Company C-13, Balaji House, Dalia Industrial Estate, Company. The financial results of the Company for each quarter Opp. Laxmi Industries, New Link Road, 4. The Company has laid down a code of conduct for the were also put on the web site of Electronic Data Andheri (West), Mumbai – 400 053. Directors and senior management of the Company. The Information and Retrieval (EDIFAR) maintained by National Tel: +91-22-26732275, Fax: +91-22-26732312 code has been posted on the website of the Company. A Informatics Centre and can also be perused from the web Email: [email protected] declaration to the effect that the Directors and senior site www.sebiedifar.nic.in. Web site: www.balajitelefilms.com managerial personnel have adhered to the same, signed Managements’ discussion and analysis forms part of the by the Managing Director & CEO of the Company, forms 8. Share transfers in physical, communication Karvy Computershare Private Limited annual report, which is posted to shareholders of the part of this Report, which alongwith the auditors’ regarding share certificates, dividends, change (Company’s Registrar and Transfer Agents) Company. certificate on compliance of Clause 49 of the Listing in address etc. may be addressed to: Unit: Balaji Telefilms Limited Agreement by the Company is annexed to this report.

64 65 ‘Karvy House’ 46, Avenue 4, Street No. 1, Fact sheet Banjara Hills, Hyderabad – 500 034. Items 2005-06 2004-05 Tel: +91-40-23420818 Earnings per share 9.15 7.61 Fax: +91-40-23420814 Email: [email protected] EPS – fully diluted 9.15 7.61 Dividend per share Rs. 3 Rs. 16 9. Share transfer system Shares sent for physical transfer are registered and Number of shares 65,210,443 65,210,443 returned within one month from the date of receipt, if Share price data (Rs.) the documents are clear in all respects. The Share High 198 130.85 Transfer Committee meets as often as required. The Low 89.65 54.1 total number of shares transferred in physical form during the year 2005-2006 were 250. There was no Closing 184.75 89 share transfer pending as on 31st March 2006. The performance of Balaji Telefilms equity share relative to the BSE Sensitive Index (Sensex) is given in the chart below.

10. Stock market data relating to shares listed in India The Company’s shares are listed on the Stock Exchange, Mumbai and National Stock Exchange of India Limited, since 22nd November 2000. The Company’s market capitalisation as on 31st March 2006 was Rs. 1204.76 crores. The monthly high and low quotations as well as the volume of shares traded during the year are as below:

Month BSE, Mumbai National Stock Exchange

High Low No. of High Low No. of 11. Investor service – complaints / correspondence received during the year Shares Traded Shares Traded Year ended 31st March 2006 April 105.00 90.00 595,072 104.7 89.65 1,798,164 Nature of complaints / requests Received Disposed May 116.50 98.65 881,759 115.85 98.2 2,774,935 Change/correction of address 15 15

June 110.00 99.85 400,591 110.7 99.1 1,320,954 Receipt of dividend warrants for revalidation 13 13 Receipt of Indemnity Board for issue of duplicate dividend warrant 16 16 July 133.40 106.10 1,127,698 134 106.7 2,907,005 Non receipt of dividend warrants 69 69 August 151.00 119.00 958,318 153.9 119 2,401,870 Letter of intimation of bank mandate 4 4 September 148.00 120.25 454,554 148 122 1,039,639 Registration of power of attorney 1 1

October 140.00 115.05 518,747 139.95 116.3 1,515,384 Non receipt of annual report 3 3 Request for ECS facility 55 November 141.00 126.75 166,645 141 126 531,384 Change/correction of bank mandate 1 1 December 147.30 128.00 231,695 147.5 125 554,001 Change/correction of bank mandate on instruments 2 2 January 184.50 142.25 374,525 195 138.25 756,774 Change/correction of name on securities 1 1

February 180.00 158.65 132,093 181 154.85 488,464 Request for consolidation/split of securities 2 2 The Company has disposed of all of the investor grievances / correspondence. There is no share transfers pending as on March 196.95 150.00 463,083 198 165 890,742 31st March 2006.

66 67 12. Shareholding pattern of Balaji Telefilms as on 31st March 2006 16. Financial calendar (tentative and subject to change) Particulars Date Category No. of shares held Percentage of shareholding Annual General Meeting 18th August 2006 Promoters 27,268,720 41.82 Financial reporting for 1st quarter ending 30th June 2006 Last week of July, 2006 Bank 1,500 0.00 Financial reporting for 2nd quarter ending 30th September 2006 Last week of October, 2006 Financial reporting for 3rd quarter ending 31st December 2006 Last week of January, 2007 Indian financial institutions 93,071 0.14 Financial reporting for the year ended 31st March 2007 (audited) June, 2007 Mutual Funds and UTI 1,606,111 2.46 Annual General Meeting for year ended 31st March 2007 August, 2007 FIIs 16,980,452 26.04

Private corporate bodies 462,896 0.71 17. Plant locations The details of regional offices of the Company are available on page 54 of the report. Resident individuals 1,633,998 2.51

HUFs 35,815 0.06 18. Investors’ correspondence Investors’ correspondence may be addressed to: NRIs 145,898 0.22 Alpa Shah, Company Secretary FCB 16,948,194 25.99 Balaji Telefilms Limited Trusts 51 0.00 C-13, Balaji House, Dalia Industrial Estate, Opp. Laxmi Industries, New Link Road, Clearing members 33,737 0.05 Andheri (West), Mumbai – 400 053 Grand Total 65,210,443 100 Tel: +91-22-26732275, Fax: +91-22-26732312 Email: [email protected]

13. Distribution of shareholding as on 31st March 2006 Any queries relating to the financial statements of the Company be addressed to: Mr. Sandeep Jain, Chief Financial Officer Number of Number of Percent of Amount Percent Balaji Telefilms Limited shares shareholders shareholders holding C-13, Balaji House, Dalia Industrial Estate, 1 to 5000 7,838 98.23 2,784,002 2.13 Opp. Laxmi Industries, New Link Road, Andheri (West), Mumbai – 400 053 5001 to 10000 66 0.83 505,018 0.39 Tel: +91-22-26732275, Fax: +91-22-26732312 10001 to 20000 28 0.35 402,662 0.31 Email: [email protected]

20001 to 30000 8 0.10 561,870 0.16 19. Insider trading 30001 to 40000 5 0.06 175,888 0.13 In terms of the SEBI (Prohibition of Insider Trading) Regulations, 1992, the Company has framed the Code of Conduct for dealing in equity shares of the Company. 50001 to 100000 7 0.09 451,540 0.35 20. Non-mandatory requirements 100001 & above 27 0.34 125,896,926 96.53 a. Chairman of the Board Total 7,979 100.00 130,420,886 100.00 The Company has Non-executive Chairman, who is entitled to maintain a Chairman’s office at the Company’s expenses. The expenses incurred by him during performance of his duties are reimbursed to him.

14. Shares under lock-in b. Remuneration Committee In accordance with SEBI Guidelines, no equity shares held by promoters are subject to lock-in. The Company has appointed a Remuneration Committee since January 2003.

15. Dematerialisation of equity shares c. Shareholder rights The Company’s shares are traded in dematerialised form only. To facilitate trading in dematerialised form there are two The Company has been sending to each shareholder, a copy of its half-yearly results, starting from the half-year ended depositories, i.e., National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Ltd. (CDSL). The 30th September 2001. Company has entered into agreement with both these depositories. Shareholders can open account with any of the d. Postal ballot depository participants registered with any of these depositories. As on 31st March 2006 about 99.91% comprising No resolutions have been proposed to be passed through postal ballot. 65,151,842 equity shares were in the dematerialised form.

68 69 CEO declaration CEO and CFO certification

I, Shobha Kapoor, Managing Director & CEO of Balaji Telefilms Limited based on confirmation received from all the directors and senior management of the Company, do hereby state that all Board Members and senior We, Ms. Shobha Kapoor, Managing Director and CEO of Balaji Telefilms Limited and Mr. V. Devarajan, management personnel has affirmed compliance with the code of conduct of the Company on annual basis. CFO of Balaji Telefilms Limited, do hereby certify to the Board that: a. We have reviewed financial statements and the cash flow statement for the year and that to the best Shobha Kapoor of our knowledge and belief : Managing Director & CEO i. these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; Mumbai, 9th May 2006 ii. these statements together present a true and fair view of the Company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

b. There are, to the best of our knowledge and belief, no transactions entered into by the Company Certificate on Corporate Governance during the year which are fraudulent, illegal or violative of the Company’s code of conduct. To the Members of c. We accept responsibility for establishing and maintaining internal controls for financial reporting and Balaji Telefilms Limited we have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors and the Audit Committee, deficiencies in the design We have examined the compliance of conditions of corporate governance by BALAJI TELEFILMS LIMITED, for or operation of such internal controls, if any, of which we are aware and the steps we have taken or year ended 31st March 2006, as stipulated in clause 49 of the Listing Agreement of the said Company with stock propose to take to rectify these deficiencies. exchange.

The compliance of conditions of corporate governance is the responsibility of the management. Our examination d. We have indicated to the auditors and the Audit committee was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of i. significant changes in internal control over financial reporting during the year; the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on the financial ii. significant changes in accounting policies during the year and that the same have been disclosed in statements of the Company. the notes to the financial statements; and instances of significant fraud of which they have become In our opinion and to the best of our information and according to the explanations given to us, we certify that the aware and the involvement therein, if any, of the management or an employee having a significant Company has complied with the conditions of Corporate Governance as stipulated in the abovementioned Listing role in the Company’s internal control system over financial reporting. Agreement.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. Shobha Kapoor V. Devarajan Managing Director & CEO CFO

For Deloitte Haskins & Sells, For Snehal & Associates, Chartered Accountants Chartered Accountants Mumbai, 9th May 2006 Mumbai, 9th May 2006

A. Siddharth Snehal Shah Partner Proprietor

Mumbai, Mumbai, Dated: 9th May 2006 Dated: 9th May 2006

70 71 Financial section

72 Auditors’ Report

To, The Members of Balaji Telefilms Limited

1. We have audited the attached Balance Sheet of Balaji appears from our examination of the books; Telefilms Limited as at 31st March 2006, the Profit and iii. the Balance Sheet, Profit and Loss Account and Cash Loss Account and also the Cash Flow statement for the Flow statement dealt with by this report are in year ended on that date, annexed thereto. These agreement with the books of account; financial statements are the responsibility of the Company's management. Our responsibility is to iv. in our opinion, the Balance Sheet, Profit and Loss express an opinion on these financial statements based Account and Cash Flow statement dealt with by this on our audit. report comply with the accounting standards referred in sub-section (3C) of section 211 of the Companies 2. We conducted our audit in accordance with auditing Act, 1956; standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain v. on the basis of written representations received from reasonable assurance about whether the financial the directors, as on 31st March, 2006, and taken on statements are free of material misstatement. An audit record by the Board of Directors, we report that none includes examining, on a test basis, evidence supporting of the directors is disqualified as on 31st March, 2006 the amounts and disclosures in the financial statements. from being appointed as a director in terms of clause An audit also includes assessing the accounting (g) of sub-section (1) of section 274 of the Companies principles used and significant estimates made by Act 1956; management, as well as evaluating the overall financial vi. in our opinion, and to the best of our information and statement presentation. We believe that our audit according to the explanations given to us, the said provides a reasonable basis for our opinion. accounts, read with the significant accounting 3. As required by the Companies (Auditor's Report) Order, policies and notes thereon, give the information 2003, issued by the Central Government in terms of required by the Companies Act, 1956, in the manner section 227(4A) of the Companies Act, 1956, we enclose so required and give a true and fair view in conformity in the annexure a statement on the matters specified in with the accounting principles generally accepted in paragraphs 4 and 5 of the said Order. India:

4. Further to our comments in the Annexure referred to a) in case of the Balance Sheet, of the state of above, we report that:- affairs of the Company as at 31st March, 2006; i. we have obtained all the information and b) in case of the Profit and Loss Account, of the explanations which to the best of our knowledge and profit for the year ended on that date; and belief were necessary for the purposes of our audit; c) in case of the Cash Flow Statement, of the cash ii. in our opinion, proper books of account as required flows for the year ended on that date. by law have been kept by the Company, so far as

For Deloitte Haskins & Sells For Snehal & Associates Chartered Accountants Chartered Accountants

(A.Siddharth) (Snehal Shah) Partner Proprietor Membership No.: 31467 Membership No.: 40016 Place : Mumbai Place : Mumbai Dated : 9th May, 2006 Dated : 9th May, 2006

73 Annexure to Auditors’ Report

Re: Balaji Telefilms Limited films / television serials. During the course of our audit, appropriate authorities. According to the (xiv) According to the information and explanations given to Referred to in Paragraph 3 of our report of even date we have not observed any continuing failure to correct information and explanations given to us, no us, the Company has not given any guarantee for loans major weaknesses in internal control system. undisputed amounts payable in respect of the taken by others from banks or financial institutions. (i) The requirements of clauses (xiii) and (xiv) of paragraph aforesaid dues were outstanding as at 31st March, 4 of the Order are not applicable. (vi) (a) In our opinion and according to the information and (xv) The Company has not obtained any term loan during 2006 for a period of more than six months from the explanations given to us, the particulars of the year hence the question of commenting on the (ii) (a) The Company has maintained proper records, dates of them becoming payable. contracts/arrangements that need to be entered in application thereof does not arise. showing full particulars including quantitative details the Register maintained under section 301 of the (b) According to the information and explanations given and situation of its fixed assets. (xvi) According to the information and explanations given to us Companies Act, 1956 have been so entered. to us, there are no cases of non-deposit with and on an overall examination of the balance sheet of the (b) The fixed assets have been physically verified by appropriate authorities of disputed dues of sales (b) In our opinion and according to the information and Company, we report that no funds raised on short-term the management during the year. In our opinion, the tax, income tax, custom duty, wealth tax, service explanations given to us, the transactions made in basis have been used for long-term investment. frequency of such verification is reasonable having tax, excise duty and cess. pursuance of contracts/arrangements entered in regard to the size of the Company and nature of its (xvii) The Company has not made any preferential allotment the Register maintained under section 301 of the (xi) The Company has no accumulated losses at the end of assets. No material discrepancies were noticed on of shares to parties and companies covered in the Companies Act, 1956 and exceeding the value of the financial year and it has not incurred cash losses in such verification. Register maintained under Section 301 of the Rs 5 lacs in respect of each party during the year the financial year covered by our report and in the Companies Act, 1956. (c) There has not been any significant disposal of fixed have made at the prices which are reasonable immediately preceding financial year. assets during the year. having regard to prevailing market prices at the (xii) In our opinion and according to the information and (xviii) No debentures have been issued by the Company and hence the question of creating security or charge in (iii) (a) The inventory (tapes) has been physically verified relevant time. explanations given to us, the Company has not defaulted in repayment of dues to banks. The Company respect thereof does not arise. during the year by the management. In our opinion, (vii) The Company has not accepted deposits from the does not have borrowings from financial institutions the frequency of verification is reasonable. public within the meaning of Sections 58A, 58AA or any (xix) During the year, the Company has not raised money by and has not issued debentures. public issue(s). (b) The procedures of physical verification of inventory other relevant provisions of the Companies Act, 1956, followed by the management are reasonable and where applicable, and the rules framed there under. We (xiii) In our opinion and according to the information and (xx) To the best of our knowledge and belief and according adequate in relation to the size of the Company and are informed that no Order has been passed by the explanations given to us, the Company has not granted to the information and explanations given to us, no the nature of its business. Company Law Board or Reserve Bank of India or any loans and advances on the basis of security by way of fraud on or by the Company has been noticed or Court or any other Tribunal. pledge of shares, debentures and other securities. reported during the year. (c) The Company has maintained proper records of inventories. No material discrepancies were noticed (viii) In our opinion, the Company has an internal audit on physical verification. system commensurate with the size and nature of its business. (iv) The Company has not granted/ taken any loans to/ from companies, firms or other parties covered in the (ix) The maintenance of cost records has not been Register maintained under section 301 of the prescribed by the Central Government under Section Companies Act, 1956. Consequently, requirements of 209 (1) (d) of the Companies Act, 1956. For Deloitte Haskins & Sells For Snehal & Associates clauses iii (a) to iii(g) of paragraph 4 of the Order are not (x) (a) According to the records of the company, Chartered Accountants Chartered Accountants applicable. undisputed statutory dues including provident fund, (v) In our opinion and according to the information and investor education and protection fund, employees' (A.Siddharth) (Snehal Shah) explanations given to us, there is an adequate internal state insurance, income-tax, sales-tax, wealth tax, Partner Proprietor service tax, customs duty, excise duty, cess and control system commensurate with the size of the Membership No.: 31467 Membership No.: 40016 Company and the nature of its business with regard to other material statutory dues, where applicable, Place : Mumbai Place : Mumbai purchase of inventory, fixed assets and for the sale of have generally been regularly deposited with the Dated : 9th May, 2006 Dated : 9th May, 2006

74 75 BALANCE SHEET AS AT 31ST MARCH, 2006 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2006 (Rupees in lacs) (Rupees in lacs) Schedules 31st March, 2006 31st March, 2005 Schedules Previous Year INCOME I SOURCES OF FUNDS Turnover 28,037.14 19,674.79 1 Shareholders' funds Other income 11 869.43 494.16 A. Share capital 1 1,304.21 1,304.21 Total 28,906.57 20,168.95 B. Reserves and surplus 2 23,742.50 20,008.90 EXPENDITURE 25,046.71 21,313.11 Cost of production of television serials / feature films 12 15,641.27 10,638.21 2 Deferred tax liability (net) 457.35 576.54 Employee costs 13 717.04 539.62 Total 25,504.06 21,889.65 Administrative and other expenses 14 2,312.52 1,761.61 II. APPLICATION OF FUNDS Interest 15 4.64 18.58 1 Fixed assets Depreciation / Amortisation 1,432.88 974.03 Gross block 3 6,695.15 5,592.80 Total 20,108.35 13,932.05 Less : depreciation 3,069.59 2,128.64 Profit Before Tax 8,798.22 6,236.90 Net block 3,625.56 3,464.16 Provision for tax Capital work in progress 507.44 119.84 Current tax [including Rs.2.21 lacs 4,133.00 3,584.00 (previous year Rs. 1.20 lacs) for wealth tax] (2,948.45) (2,086.20) 2 Investments 4 16,238.59 11,374.60 Deferred tax 119.19 (21.08) 3 Current assets, loans and advances Fringe Benefit tax (26.75) – A. Inventories 5 1,161.82 2,386.84 Profit After Tax 5,942.21 4,129.62 B. Sundry debtors 6 7,369.59 5,349.57 Excess provision for tax in respect of earlier years 22.07 21.06 C. Cash and bank balances 7 623.41 300.44 Balance brought forward from previous year 3,250.28 8,832.40 D. Loans and advances 8 1,704.78 1,745.34 Amount Available for Appropriations 9,214.56 12,983.08 10,859.60 9,782.19 Appropriations Less :- Current liabilities and provisions 1) Interim dividend – 8,242.60 A. Current liabilities 9 3,434.08 2,832.38 2) Transferred to general reserve 594.23 413.00 B. Provisions 10 2,293.05 18.76 3) Proposed dividend 1,956.31 – 5,727.13 2,851.14 4) Corporate dividend tax 274.37 1,077.20 Net current assets 5,132.47 6,931.05 BALANCE CARRIED TO BALANCE SHEET 6,389.65 3,250.28 Total 25,504.06 21,889.65 Basic and diluted earnings per share (Refer note 9 of Schedule 16) 9.15 7.61 Significant accounting policies and notes on accounts 16 Significant accounting policies and notes on accounts 16

As per our attached report of even date For and on behalf of Balaji Telefilms Limited As per our attached report of even date For and on behalf of Balaji Telefilms Limited For Deloitte Haskins & Sells For Deloitte Haskins & Sells Chartered Accountants Chartered Accountants

A. Siddharth Jeetendra Kapoor Shobha Kapoor Ekta Kapoor A. Siddharth Jeetendra Kapoor Shobha Kapoor Ekta Kapoor Partner Chairman Managing Director & C.E.O. Creative Director Partner Chairman Managing Director & C.E.O. Creative Director Membership No. 31467 Membership No. 31467 Place : Mumbai Place : Mumbai Dated : 9th May, 2006 Dated : 9th May, 2006

For Snehal & Associates Akshay Chudasama Dhruv Kaji Michelle Lee Guthrie For Snehal & Associates Akshay Chudasama Dhruv Kaji Michelle Lee Guthrie Chartered Accountants Director Director Director Chartered Accountants Director Director Director

Snehal Shah John Yu Leung Lau Pradeep Sarda Alpa Shah V. Devarajan Snehal Shah John Yu Leung Lau Pradeep Sarda Alpa Shah V. Devarajan Proprietor Director Director Company Secretary Chief Financial Officer Proprietor Director Director Company Secretary Chief Financial Officer Membership No. 40016 Membership No. 40016 Place : Mumbai Place : Mumbai Place : Mumbai Place : Mumbai Dated : 9th May, 2006 Dated : 9th May, 2006 Dated : 9th May, 2006 Dated : 9th May, 2006

76 77 CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2006 SCHEDULES FORMING PART OF THE BALANCE SHEET (Rupees in lacs) (Rupees in lacs) 31.3.2006 31.3.2005 As at As at 31st March, 31st March, A Cash flow from operating activities 2006 2005 Profit before extra-ordinary item and tax 8,798.22 6,236.90 Adjustments for: 1 SHARE CAPITAL Depreciation and amortisation 1,432.88 974.03 Authorised : Bad debts written off 24.13 13.98 75,000,000 equity shares of Rs. 2/- each 1,500.00 1,500.00 Loss on sale / discard of fixed assets(net) 50.84 3.82 Issued, Subscribed and Paid-up Loss due to fire 168.46 – 65,210,443 equity shares of Rs. 2/- each 1,304.21 1,304.21 Profit on sale of long term investments (non trade) (net) (217.03) (251.21) Note: Excess provision of earlier years written-back (3.95) (53.39) 6,500,000 equity shares of the original value of Rs. 10/- each were allotted as Interest expenses 4.64 18.58 fully paid up bonus shares by capitalisation of surplus in Profit and Loss account. Interest/dividend income (289.26) (175.62) Total 1,304.21 1,304.21 Operating profit before working capital changes 9,968.93 6,767.09 (Increase) in trade and other receivable (1,896.97) (1,668.79) Decrease / (increase) in inventories 1,225.02 (1,658.46) As at As at 31st March, 31st March, Increase in trade payables 609.60 1,554.76 2006 2005 9,906.58 4,994.60 Direct taxes paid (3,016.14) (2,266.18) 2 RESERVES AND SURPLUS Net cash from operating activities (a) 6,890.44 2,728.42 Share premium account B Cash flow from investing activities As per last Balance sheet 14,785.61 3,015.24 Purchase of fixed assets (2,201.18) (1,319.39) Add: Received during the year – 12,050.89 Sale of fixed assets – 0.25 Less: Share issue expenses adjusted during the year – 280.52 Purchase of investments (9,386.10) (5,956.53) 14,785.61 14,785.61 Sale of investments 4,739.14 2,433.24 General reserve Income from investments 289.26 175.62 As per last Balance sheet 1,973.01 1,560.01 Net cash (used in) investing activities (b) (6,558.88) (4,666.81) Add: Transfered from Profit and Loss account 594.23 413.00 C Cash flow from financing activities 2,567.24 1,973.01 Interest paid (4.64) (18.58) Surplus in Profit and Loss account 6,389.65 3,250.28 Dividend paid (3.95) (8,749.04) Total 23,742.50 20,008.90 Corporate dividend tax paid – (1,143.19) Proceeds from issue of shares (Including share premium received) – 12,324.77 Share issue expenses adjusted against share premium account – (280.52) Net cash from / (used in) financing activities (c) (8.59) 2,133.44 Net increase in cash and Cash equivalents (a+b+c) 322.97 195.05 Cash and cash equivalents as at 31st March, 2005 (opening balance) 300.44 105.39 3 FIXED ASSETS Cash and cash equivalents as at 31st March, 2006 (closing balance) 623.41 300.44 GROSS BLOCK DEPRECIATION / AMORTISATION NET BLOCK PARTICULARS As at Additions Deductions As at Upto For On Upto As at As at 1st April, 31st March, 31st March, the Deductions 31st March, 31st March, 31st March, As per our attached report of even date For and on behalf of Balaji Telefilms Limited 2005 2006 2005 year 2006 2006 2005 For Deloitte Haskins & Sells Buildings 235.75 – – 235.75 15.50 3.94 – 19.44 216.31 220.25 Chartered Accountants Plant and machinery - Computers 434.56 76.28 – 510.84 179.89 78.23 – 258.12 252.72 254.67 Plant and machinery - Others 1,457.90 144.40 – 1,602.30 299.40 107.49 – 406.89 1,195.41 1,158.50 A. Siddharth Jeetendra Kapoor Shobha Kapoor Ekta Kapoor Studios and sets 2,614.92 1,090.49 711.23 2,994.18 1,413.98 863.82 491.93 1,785.87 1,208.31 1,200.94 Partner Chairman Managing Director & C.E.O. Creative Director Vehicles 281.31 129.73 – 411.04 98.85 32.19 – 131.04 280.00 182.46 Membership No. 31467 Furniture and fixtures 203.34 30.98 – 234.32 29.87 13.69 – 43.56 190.76 173.47 Computers 216.11 8.39 – 224.50 69.60 35.79 – 105.39 119.11 146.51 Place : Mumbai Office equipment 120.71 41.07 – 161.78 17.73 6.33 – 24.06 137.72 102.98 Dated : 9th May, 2006 Electrical fittings 28.20 2.24 – 30.44 3.82 1.40 – 5.22 25.22 24.38 For Snehal & Associates Akshay Chudasama Dhruv Kaji Michelle Lee Guthrie Sub Total 5,592.80 1,523.58 711.23 6,405.15 2,128.64 1,142.88 491.93 2,779.59 3,625.56 3,464.16 Chartered Accountants Director Director Director Intangible Asset - Tele Serial rights – 290.00 – 290.00 – 290.00 – 290.00 – – Grand Total 5,592.80 1,813.58 711.23 6,695.15 2,128.64 1,432.88 491.93 3,069.59 3,625.56 3,464.16 Previous Year 4,383.08 1,255.74 46.02 5,592.80 1,196.57 974.03 41.96 2,128.64 3,464.16 Snehal Shah John Yu Leung Lau Pradeep Sarda Alpa Shah V. Devarajan Capital work in progress 507.44 119.84 Proprietor Director Director Company Secretary Chief Financial Officer Membership No. 40016 Place : Mumbai Place : Mumbai Dated : 9th May, 2006 Dated : 9th May, 2006

78 79 SCHEDULES FORMING PART OF THE BALANCE SHEET SCHEDULES FORMING PART OF THE BALANCE SHEET

(Rupees in lacs) (Rupees in lacs) NO. OF UNITS VALUE NO. OF UNITS VALUE As at As at As at As at As at As at As at As at 31st March, 31st March, 31st March, 31st March, 31st March, 31st March, 31st March, 31st March, 2006 2005 2006 2005 2006 2005 2006 2005 4 INVESTMENTS 4 INVESTMENTS (Contd.) Prudential I.C.I.C.I. Floating Rate Plan - Growth – 1,454,516 – 152.90 LONG TERM INVESTMENTS (NON TRADE) Prudential I.C.I.C.I. Floating Rate Plan - Dividend 4,149,711 3,965,792 416.94 398.44 UNQUOTED Prudential I.C.I.C.I. Liquid Plan - Dividend – 1,722,680 – 203.97 IN UNITS OF MUTUAL FUNDS Prudential I.C.I.C.I. FMP Plan 1 - Growth 3,000,000 3,000,000 300.00 300.00 Birla Cash Plus - Institutional Dividend Plan - Weekly Dividend 2,808,002 3,640 303.55 0.39 Prudential I.C.I.C.I. Short Term Plan - Growth 2,737,958 – 350.00 – Birla FMP - Annual Plan - Growth – 3,000,000 – 300.00 Prudential I.C.I.C.I. Long Term Floating Rate Plan A - Growth 1,542,618 – 164.22 – Birla Floating Rate Fund - Short Term Plan - Growth 3,823,637 2,854,924 412.87 302.87 Prudential I.C.I.C.I. Floating Rate Plan A - Growth 19,733 – 2.03 – Birla Fixed Term Plan Series C - Growth 3,000,000 3,000,000 300.00 300.00 Reliance Fixed Term Plan - Annual - Growth – 3,000,000 – 300.00 Birla FMP - Quarterly Series 1 - Plan B - Growth – 975,353 – 100.00 Reliance Floating Rate Fund - Monthly Dividend 1,064,023 1,064,023 107.09 107.09 Birla Floating Rate Fund - Short Term - IP - Growth 3,212,271 – 323.36 – Reliance Fixed Tenor Fund Plan B - Growth Plan 3,000,000 – 300.00 – Chola Freedom Income Short Term Fund 435,069 435,069 44.44 44.44 Reliance Floating Rate Fund - Growth 4,013,441 – 416.34 – Chola Liquid - IP - Growth – 434,339 – 56.45 Tata Monthly Income Fund - Dividend 2,831,183 2,711,911 325.85 312.02 DSP Merrill Lynch - Floating Rate Fund - Growth 2,721,879 1,875,381 293.13 200.00 Tata Fixed Horizon Series 1 - Plan A (371 days ) - Growth 3,500,000 3,500,000 350.00 350.00 DSP Merrill Lynch Bond Fund - Floating Rate - Weekly Dividend 1,721,194 1,645,733 172.69 165.12 Tata Floating Rate Short Term Institutional Plan - Growth 5,692,492 – 600.00 – DSP Merrill Lynch - Floating Rate - Reg - Growth 2,655,243 – 300.00 – Templeton Treasury Management Account - Daily Dividend 7,065 6,780 106.89 102.58 DSP Merrill Lynch Floating Rate Fund - Institutional Plan - Growth 49,378 – 500.00 – Templeton Floating Rate Income Fund - Long Term Plan - Growth – 2,213,619 – 255.25 Deutsche Floating Rate - Monthly Dividend Reinvest 1,033,178 989,588 105.58 101.13 Templeton Floating Rate Income Fund - Long Term Plan - Dividend 3,404,962 3,288,251 348.73 336.76 Deutsche Insta Cash Plus Fund - Weekly Dividend – 2,986,307 – 302.83 Templeton India Short Term Income Plan Growth 44,234 – 550.00 – FT MIP Plan A - Quarterly Dividend 1,951,866 1,790,629 229.79 210.56 UTI - Fixed Term Income Fund - Series 1 - Plan 18 - Q3 Growth Plan 3,000,000 – 300.00 – Grindlays Cash Fund - Growth 18,619 18,619 2.18 2.18 UTI Floating Rate Fund - Short Term Plan - Growth 5,429,541 – 600.00 – Grindlays Super Saver Short Term Fund 12,783 12,783 1.51 1.51 UTI Liquid Cash Plan - Institutional - Daily Income 27,419 49,809 276.35 504.19 Grindlays Fixed Maturity - Annual Plan Growth – 1,000,000 – 100.00 15,725.31 10,861.32 Grindlays Fixed Maturity - 7th Plan B - Growth 3,000,000 3,000,000 300.00 300.00 Quoted Grindlays Floating Rate Fund - Long Term - Growth 18,982 18,982 1.95 1.95 6.75% Tax free Bonds of Unit Trust of India of Rs.100/- each 500,000 500,000 513.28 513.28 Grindlays Floating Rate Fund - Long Term - Plan A - Monthly Dividend 1,217,304 1,167,085 121.80 116.77 Total 16,238.59 11,374.60 Grindlays Floating Rate - Short Term Plan - Monthly Dividend 1,692,447 1,618,779 169.87 162.48 (Rupees in lacs) Grindlays Floating Rate - Short Term - Institutional Plan B - Growth – 6,458,188 – 681.73 Notes : Cost Market value Grindlays Floating Rate Fund - Long Term - Plan B - Growth 1,018,887 – 105.52 – 1 Aggregate of Quoted Invetsments 513.28 508.45 Grindlays Floating Rate Fund - Short Term - Plan C - Growth 9,161,956 – 1,000.00 – Previous Year 513.28 523.75 HDFC Monthly Income Plan Short Term Fund - Quarterly Dividend 2,255,881 2,138,620 230.65 218.25 Aggregate of Unquoted Investments 15,725.31 HDFC Fixed Investment Plan - June 2004(2) - Growth – 2,500,000 – 250.00 Previous Year 10,861.32 HDFC Floating Rate Income Fund - Short Term Plan - Growth – 3,324,364 – 361.34 HDFC Floating Rate Income Fund - Short Term Plan - Weekly Dividend 708,488 681,413 71.10 68.37 Total 16,238.59 HDFC Cash Management Fund Savings Plan - Weekly Dividend 4,000,568 3,826,957 425.46 407.02 Previous year 11,374.60 HDFC Cash Management Fund Savings Plus Plan - Weekly Dividend 3,018,710 – 302.61 – 2 Details of investments purchased and sold during the year (Rupees in lacs) HDFC FMP 13M March 2006 (1) - Institutional Plan - Gorwth 2,000,000 – 200.00 – Particulars Nos. Cost HDFC Cash Management Fund Savings Plan - Growth 2,058,277 – 300.00 – ING Vysya Liquid Fund - Weekly Dividend 32,687 3.53 HDFC Floating Rate Income Fund - Long Term - Growth 2,340,156 – 268.15 – Deutsche Insta Cash Plus Fund - Weekly Dividend 119,240 12.10 HSBC Cash Fund - Institutional - Monthly Dividend 5,039,076 4,822,596 526.92 504.30 Principal Cash Management Fund - Money At Call - Daily Dividend 295 0.03 HSBC Fixed Term Series - 4 - Growth 3,000,000 – 300.00 – Prudential I.C.I.C.I. Liquid Plan - Dividend 2,610,255 309.09 HSBC Floating Rate Fund - Short Term - Institutional Option - Growth 950,814 – 100.00 – ING Vysya Liquid Fund - Weekly Dividend – 2,801,890 – 302.78 Details of investments purchased and sold during the previous Year (Rupees in lacs) JM Floater Fund - Short Term Plan - Growth 4,424,920 1,952,384 494.08 212.07 Particulars Nos. Cost JM High Liquid - Institutional Plan - Dividend 1,045,841 1,004,987 105.03 100.93 JM Equity and Derivative Fund - Growth 2,904,062 – 300.00 – HDFC Cash Management Fund - Savings Plan - Weekly Dividend 1,888,082 200.72 Kotak FMP (8) - Growth – 3,000,000 – 300.00 Kotak Dynamic Bond Fund - Dividend 983,081 100.00 Kotak FMP Series 1 - Growth 3,000,000 3,000,000 300.00 300.00 Birla Cash Plus - Institutional Plan - Dividend 5,261,805 567.94 Kotak Floater - Short Term - Monthly Dividend 2,229,868 2,132,960 223.07 213.37 Birla MIP II - Savings 5 Plan - Dividend 3,002,671 300.27 Kotak Liquid (Institutional Premium) - Weekly Dividend 2,132,299 2,037,936 213.98 204.52 Prudential ICICI Liquid Plan - Dividend 2,534,447 299.91 Kotak Floater Short Term Growth 2,901,829 – 317.68 – Deutsche Dynamic Bond Fund - I.P. - Dividend 976,877 100.00 Kotak FMP Series XIV - Growth 3,000,000 – 300.00 – Templeton Treasury Management Account - Daily Dividend 73 1.10 Magnum Debt Fund Series - 15 Months (Jan 05) - Growth Option 3,000,000 3,000,000 300.00 300.00 Kotak Liquid (Institutional Premium) - Weekly Dividend 2,991,355 309.84 Principal Cash Management Fund - Money At Call - Daily Dividend – 3,022,736 – 302.27 Birla Cash Plus - Daily Dividend 6,440 1.05 Principal Income Fund - Short Term - Institutional Plan - Growth 1,750,011 – 200.00 – Birla Cash Plus - Institutional Plan - Weekly Dividend 2,774,669 300.22 Prudential I.C.I.C.I. Flexible Income Plan - Dividend 395,659 382,069 43.90 42.49 Prudential ICICI Liquid Plan - Daily Dividend 8,236 0.98

80 81 SCHEDULES FORMING PART OF THE BALANCE SHEET SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

(Rupees in lacs) (Rupees in lacs) As at As at Previous 31st March, 31st March, Year 2006 2005 11 OTHER INCOME 5 INVENTORIES Interest on fixed deposits with banks (gross) 18.41 13.69 Television serials / feature films 1,141.05 2,367.24 (Tax deducted at source Rs. 4.13 lacs (previous year Rs. 2.95 lacs) Tapes 20.77 19.60 Interest on Tax Free Bonds 33.75 42.19 Total 1,161.82 2,386.84 Interest on Income tax refund 6.48 – 6 SUNDRY DEBTORS Insurance Claim Received 344.66 (Unsecured and considered good) Dividend on long term investments (non trade) 230.62 119.74 Excess provision of earlier years written back 3.95 53.39 Debts outstanding for a period exceeding six months 531.50 199.41 Profit on sale of long term investments (non trade) (net) 217.03 251.21 Other debts 6,838.09 5,150.16 Miscellaneous income 14.53 13.94 Total 7,369.59 5,349.57 Total 869.43 494.16

7 CASH AND BANK BALANCES Cash on hand 37.30 19.23 Balances with scheduled banks In Current accounts 515.35 204.60 In Fixed deposit accounts (over which bank has a lien) 70.76 76.61 586.11 281.21 12 COST OF PRODUCTION OF TELEVISION SERIALS / FEATURE FILMS Total 623.41 300.44 Opening stock of television serials / feature films and tapes 2,386.84 728.37 Add: Cost of production 8 LOANS AND ADVANCES Purchase of costumes and dresses 301.19 239.67 (Unsecured, considered good) Purchase of tapes 373.33 286.32 Advances recoverable in cash or in kind or for value to be received 385.15 548.50 Payments to and provision for artistes, junior artistes, Advance tax 491.20 384.58 dubbing artistes fees 3,788.07 3,051.37 Deposits* 828.43 812.26 Payments to and provision for directors, technicians and other fees 4,380.75 3,855.69 Total 1,704.78 1,745.34 Shooting and location expenses 1,445.99 1,562.61 Notes : Telecasting fees 1,452.46 1,129.29 1. *: Includes deposits given to directors for property taken on lease from them 630.00 615.00 Uplinking charges / Special dispatch charges 162.64 200.63 2. Maximum amount outstanding at any time during the year for above deposits 630.00 615.00 Food and refreshments 355.83 323.33 Set properties and equipment hire charges 1,000.19 792.99 Other production expenses 1,155.80 14,416.25 854.78 12,296.68 9 CURRENT LIABILITIES 16,803.09 13,025.05 Sundry creditors Less: Closing stock of television serials / feature films and tapes 1,161.82 2,386.84 (i) Total outstanding dues to small scale industrial undertakings – – Total 15,641.27 10,638.21 (ii) Total outstanding dues of creditors other than small scale industrial undertakings 2,800.25 2,314.86 2,800.25 2,314.86 Advances received from customers 55.30 112.68 Other liabilities 578.53 404.84 Total 3,434.08 2,832.38

10 PROVISIONS Provision for tax 62.37 18.76 13 EMPLOYEE COSTS Provision for Fringe benefit tax (net) – – Salaries, wages and bonus 683.28 507.41 Proposed dividend 1,956.31 – Contribution to Provident and Other funds 15.32 12.15 Corporate dividend tax 274.37 – Staff welfare expenses 18.44 20.06 Total 2,293.05 18.76 Total 717.04 539.62

82 83 SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT SCHEDULE FORMING PART OF THE ACCOUNTS

(Rupees in lacs) 16 Significant accounting policies and notes on accounts

Previous A. SIGNIFICANT ACCOUNTING POLICIES: Year Basis of accounting 14 ADMINISTRATIVE AND OTHER EXPENSES The financial statements are prepared under the historical cost convention on accrual basis of accounting and in accordance with generally accepted accounting principles in India. Electricity and water charges 273.45 229.35 Lease rent 309.12 190.81 Fixed assets Rates and taxes 21.14 18.13 Fixed assets are stated at cost of acquisition or construction. They are stated at historical cost less accumulated depreciation and impairment loss, if any. Insurance 217.79 418.57 Repairs and maintenance Depreciation - Building – 2.50 Depreciation on fixed assets is provided on straight line basis in accordance with provisions of the Companies Act, 1956 - Plant and machinery 18.99 40.29 at the rates and in the manner specified in schedule XIV of this Act except for the following fixed assets where higher - Others 155.84 79.72 rates of depreciation have been applied: Studios and sets @ 33.33% Travelling and conveyance expenses 146.31 115.45 Plant and machinery - Computers @ 16.21% Legal and professional charges 363.87 239.97 Communication charges 63.32 61.47 Investments Loss on sale / discard of fixed assets (net) 50.84 3.82 Current investments are carried at lower of cost and fair value. Long term investments are carried at cost. However, when there is a decline, other than temporary, the carrying amount is reduced to recognise the decline. Loss due to fire at studio 168.46 – Donations 18.28 22.57 Inventories Bad debts written off 24.13 13.98 Items of inventory are valued at lower of cost and net realisable value. Cost is determined on the following basis : Director's sitting fees 2.20 1.55 Tapes : First In First Out Television serials/ feature films : Average cost Advertisement and sales promotion expenses 53.92 25.82 Unamortised cost of feature films : The cost of feature films is amortised in the ratio of current Miscellaneous expenses 424.86 297.61 revenue to expected total revenue. At the end of each accounting Total 2,312.52 1,761.61 period, balance unamortised cost is compared with net expected revenue. If net expected revenue is less than unamortised cost, the same is written down to net expected revenue Revenue recognition 15 INTEREST a) In respect of sponsored programmes, revenue is recognised as and when the relevant episodes of the programmes On cash credit account 4.64 13.80 are telecast. On income / wealth tax – 4.78 b) In respect of commissioned programmes, revenue is recognised as and when the relevant episodes of the programmes Total 4.64 18.58 are delivered to the channels. c) In respect of films, revenue is recognised in accordance with the terms and conditions of the agreements on or after the first theatrical release of the films. In all other cases, revenue (income) is recognised when no significant uncertainty as to its determination or realisation exists. Retirement benefits Provident fund Contribution as required under the statute / rules is made to the Government Provident fund. Gratuity The trustees of Balaji Telefilms Limited Employees Group Gratuity - Cum - Life Assurance (Cash Accumulation) Scheme have taken a Group Gratuity cum Life Assurance Policy from the Life Insurance Corporation of India. Provision is made on the basis of contribution payable in respect of the aforesaid policy. Foreign currency transactions Transactions in foreign currency are recorded at the original rates of exchange in force at the time the transactions are effected. At the year end, monetary items denominated in foreign currency are reported using the closing rates of exchange. Exchange differences arising thereon and on realisation / payment of foreign exchange are accounted in the relevant year as income or expense. Doubtful debts / advances Provision is made in the accounts for debts / advances which in the opinion of the management are considered doubtful of recovery.

84 85 SCHEDULE FORMING PART OF THE ACCOUNTS SCHEDULE FORMING PART OF THE ACCOUNTS

16 Significant accounting policies and notes on accounts (Contd.) 16 Significant accounting policies and notes on accounts (Contd.) Borrowing costs 4. Computation of net profit in accordance with section 198 read with section 309 of the Companies Act, 1956 Borrowing costs that are attributable to the acquisition, construction or production of qualifying assets are capitalised as (Rupees in lacs) part of the cost of such assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use. All other borrowing costs are charged to revenue. Previous year Taxes on income Profit before tax 8,798.22 6,236.90 Tax expense comprises both current and deferred tax at the applicable enacted / substantively enacted rates. Current tax Add: represents the amount of income tax payable/ recoverable in respect of the taxable income/ loss for the reporting period. Loss on sale of fixed assets – 3.82 Deferred tax represents the effect of timing differences between taxable income and accounting income for the reporting Managerial remuneration 581.60 406.75 period that originate in one period and are capable of reversal in one or more subsequent periods. Directors sitting fees 2.20 – 583.80 410.57 Provisions and Contingencies 9,382.02 6,647.47 Provisions are recognised when the Company has a legal and constructive obligation as a result of a past event, for which Less: Profit on sale of long term investments (non-trade) (net) 217.03 251.21 it is probable that cash outflow will be required and a reliable estimate can be made of the amount of the obligation. 217.03 251.21 Contingent liabilities are disclosed when the Company has a possible or present obligation where it is not probable that Net Profit for the year 9,164.99 6,396.26 an outflow of resources will be required to settle it. Contingent assets are neither recognised nor disclosed. Commission @ 2% each to the Executive Directors Impairment loss (previous year 2% each) 366.60 255.86 Impairment loss is provided to the extent the carrying amount of assets exceeds their recoverable amounts. Recoverable Commission @ 0.90% (previous year 0.90%) to the Chairman 82.48 57.57 amount is the higher of an asset's net selling price and its value in use. Value in use is the present value of estimated Commission @ 0.10% to other Non-Executive Directors future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life. (previous year 0.10%, restricted to Rs.2 lacs each) 9.16 6.00 Net selling price is the amount obtainable from sale of the asset in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal. Intangible assets 5. Payment to auditors (Rupees in lacs) Intangible assets are stated at cost of acquisition less amortisation. Teleserial rights are amortised on a straight-line basis Previous year over the period of the agreement(s). a) as auditors 13.00 8.00 B. NOTES ON ACCOUNTS (Rupees in lacs) b) as advisor, or in any other capacity, in respect of company law matters – 0.75 Previous year c) in any other manner (certification work, etc) 4.50 4.70 1. Estimated amount of contracts remaining to be executed on – 48.19 d) as expenses 0.08 0.04 capital account and not provided for e) for service tax 0.04 0.12 2. The Company has applied to the Office of the Commissioner of Total 17.62 13.61 Sales- tax, Mumbai, to ascertain whether the Company's sales are liable to tax under the Sales- tax laws. The matter is still pending before the Sales -tax authority. 6. Cash credit facility with a bank is secured by hypothecation of the current assets (both present and future) and library assets of the Company. 3. Managerial remuneration under section 198 of the Companies Act, 1956 to Directors (including to the Managing Director) 7. Related Party Disclosures Salary 115.44 81.83 (a) Name of related parties and description of relationship. Commission 458.24 319.43 Name of the Related Party Relationship Perquisites in cash or in kind – 0.70 Mr. Jeetendra Kapoor Key management person Contribution to Provident Fund 7.92 5.49 Mrs. Shobha Kapoor Key management person Artistes fees – 19.64 Ms. Ekta Kapoor Key management person Total 581.60 427.09 Mr. Tusshar Kapoor Key management person Mrs. Nirmala Sood Relative of key management personnel Mr. Ramesh Sippy Relative of key management personnel Mr. Rakesh Sippy Relative of key management personnel Screentestindia.com Pvt.Ltd Enterprises over which key management personnel and their B.R.A Corporation} relatives are able to exercise significant influence.

86 87 SCHEDULE FORMING PART OF THE ACCOUNTS SCHEDULE FORMING PART OF THE ACCOUNTS

16 Significant accounting policies and notes on accounts (Contd.) 16 Significant accounting policies and notes on accounts (Contd.)

(b) Details of Transactions with related parties during the year (Rupees in lacs) 8. Segment Information: Enterprises Key management Relatives of key Total (A) Information about primary segments Nature of Transactions over which key personnel management The Company has considered business segment as the primary segment for disclosure. The reportable business management personnel segments are as under: personnel and their relatives are able to (a) Commissioned Programmes : Income from sale of television serials to channels exercise significant (b) Sponsored Programmes : Income from telecasting of television serials on channels influence Previous Previous Previous Previous (c) Other : Includes feature films year year year Year

Directors sitting fees Commissioned Sponsored Others Total Mr. Jeetendra Kapoor – – 0.50 0.45 – – 0.50 0.45 Programmes Programmes Mr. Tusshar Kapoor – – – 0.15 – – – 0.15 Previous Previous Previous Previous Rent year year year year Mr. Jeetendra Kapoor – – 7.20 7.20 – – 7.20 7.20 Mrs. Shobha Kapoor – – 65.52 5.52 – – 65.52 5.52 REVENUE Mr. Tusshar Kapoor – – 2.40 2.40 – – 2.40 2.40 From External Customers 23,499.23 16,481.98 3,456.15 3,192.81 1,081.76 – 28,037.14 19,674.79 Others 0.60 0.60 0.72 0.72 – – 1.32 1.32 Add: Inter Segment sale – – – – – – – –

Recovery and payment of Total Revenue 23,499.23 16,481.98 3,456.15 3,192.81 1,081.76 – 28,037.14 19,674.79 artistes registration fees RESULTS M/s. Screentestindia.com Pvt. Ltd. 1.43 0.03 – – – – 1.43 0.03 Segment result 11,100.44 7,419.15 693.94 777.74 (391.48) – 11,402.90 8,196.89 Managerial remuneration Unallocable Corporate Expenses – – – – – – (3,106.33) (2,368.24) Mrs. Shobha Kapoor – – 239.10 167.93 – – 239.10 167.93 Operating Profit 8,296.57 5,828.65 Ms. Ekta Kapoor – – 239.10 167.93 – – 239.10 167.93 Interest Expense – – – – – – (4.64) (18.58) Mr. Jeetendra Kapoor – – 82.48 57.57 – – 82.48 57.57 Interest income/Dividend on Others – – 11.76 8.02 – – 11.76 8.02 Long-Term Investments – – – – – – 289.26 175.62 Artistes fees Profit on sale of Long-Term Mr. Tusshar Kapoor – – – 19.64 – – – 19.64 Investments (non trade) – – – – – – 217.03 251.21 Dividend paid Provision for tax (2,856.01) (2,107.28) Mrs. Shobha Kapoor – – – 1688.95 – – – 1688.95 Profit after tax 5,942.21 4,129.62 Ms. Ekta Kapoor – – – 1653.59 – – – 1653.59 OTHER INFORMATION: Mr. Jeetendra Kapoor – – – 946.48 – – – 946.48 Segment assets 10,316.56 7,657.34 1,290.34 1,571.37 469.23 1,632.65 12,076.13 10,861.36 Mr. Tusshar Kapoor – – – 345.14 – – – 345.14 Unallocated Corporate assets 19,155.06 13,879.43 Others – – – – – 1.71 – 1.71 Total assets 31,231.19 24,740.79 Amount payable as at Segment liabilities 2,451.85 1,162.90 104.29 171.70 82.32 403.24 2,638.46 1,737.84 31st March, 2006 Unallocated Corporate liabilities – – – – – – 3,546.02 1,689.84 Mrs. Shobha Kapoor – – 187.95 130.28 – – 187.95 130.28 Ms. Ekta Kapoor – – 187.95 130.28 – – 187.95 130.28 Total Liabilities 6,184.48 3,427.68 Mr. Jeetendra Kapoor – – 82.48 57.57 – – 82.48 57.57 Capital expenditure 1,818.61 1,077.25 1,818.61 1,077.25 Others 0.47 0.39 1.15 19.70 0.10 0.10 1.72 20.19 Depreciation 1,049.54 892.40 1,049.54 892.40 Amount receivable Significant Non cash expenses (Deposits for lease property) other than depreciation as at 31st March, 2006 Loss on sale / discard of Mrs. Shobha Kapoor – – 222.50 207.50 – – 222.50 207.50 fixed assets (net) – – 50.84 3.82 Mr. Jeetendra Kapoor – – 300.00 300.00 – – 300.00 300.00 Loss due to fire at Studio – – 168.46 – Mr. Tusshar Kapoor – – 100.00 100.00 – – 100.00 100.00 Bad debts written off – – 24.13 13.98 Others – – 7.50 7.50 – – 7.50 7.50 Note: There are no provision for doubtful debts, amounts written off or written back during the year for debts due from or due (B) The Company does not have any reportable Secondary Segments to related parties.

88 89 SCHEDULE FORMING PART OF THE ACCOUNTS SCHEDULE FORMING PART OF THE ACCOUNTS

16 Significant accounting policies and notes on accounts (Contd.) 16 Significant accounting policies and notes on accounts (Contd.)

9. Earnings Per Share: Earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average Amount of Dividend (Rupees in lacs) number of equity shares outstanding during the year as under : Year to which dividend relates Previous Year

Previous Year a) Final dividend for the financial year 2003-2004 (Nos.) – 515.16 Net profit after tax as per the Profit and Loss account -(Rs. in lacs) 5,942.21 4,129.62 b) Interim dividend for the financial year 2004-2005 (Nos.) – 8242.60 Excess provision for tax in respect of earlier years -(Rs.in lacs) 22.07 21.06 (A) Profit for the year attributable to equity share holders-(Rs.in lacs) 5,964.28 4,150.68 Number of non-resident shareholders (Rupees in lacs) (B) Weighted average number of equity shares outstanding 65,210,443 54,555,235 Year to which dividend relates during the year (Nos.) a) Final dividend for the financial year 2003-2004 – 192 (C) Earnings per share - Basic and diluted (Rs.) 9.15 7.61 b) Interim dividend for the financial year 2004-2005 – 189 (D) Nominal value of shares (Rs.) 2 2

Number of equity shares held by them on which dividend was due 10. Components of deferred Tax Assets/(Liabilities) (Rupees in lacs) Year to which dividend relates As at As at a) Final dividend for the financial year 2003-2004 (Nos.) – 1,36,305 31st March, 31st March, b) Interim dividend for the financial year 2004-2005 (Nos.) – 2,06,045 2006 2005 Difference between the books and the written down values of fixed assets (457.35) (576.54) Amount remitted (net of tax) to banks or power holders in India of the non-resident shareholders (Rupees in lacs) Deferred tax asset/ (liability)-net Total (457.35) (576.54) Year to which dividend relates a) Final dividend for the financial year 2003-2004 – 1.36 b) Interim dividend for the financial year 2004-2005 – 32.97 11. Lease Transactions: a) Future lease rentals in respect of fixed assets taken on non-cancellable operating lease basis are as follows: 14. Figures of the previous year have been regrouped wherever necessary to correspond with those of the (Rupees in lacs) current year. Previous Year

1) Amount due within 1year 14.40 10.80 2) Amount due later than 1year and not later than 5 years 21.60 – Signatures to Schedule 1 to 16 3) Amount due later than 5 years – – 36.00 10.80 As per our attached report of even date For and on behalf of Balaji Telefilms Limited b) Amount of lease rentals charged to the profit and loss account in respect of operating leases is Rs.309.12 lacs For Deloitte Haskins & Sells Chartered Accountants (previous year Rs.190.81 lacs)

A. Siddharth Jeetendra Kapoor Shobha Kapoor Ekta Kapoor 12. Unutilised money aggregating to Rs.NIL (previous year Rs.2704.00 lacs) out of the issue of shares have Partner Chairman Managing Director & C.E.O. Creative Director been partly invested in the units of mutual funds Rs. NIL (previous year Rs.2500.00 lacs) and the balance Membership No. 31467 are lying in current account with the bank Rs.NIL (previous year Rs.204.00 lacs). Place : Mumbai Dated : 9th May, 2006 13. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of part II of schedule VI of the Companies Act, 1956 (to the extent applicable) For Snehal & Associates Akshay Chudasama Dhruv Kaji Michelle Lee Guthrie (Rupees in lacs) Chartered Accountants Director Director Director Previous Year

a. Expenditure in foreign currency Snehal Shah John Yu Leung Lau Pradeep Sarda Alpa Shah V. Devarajan Proprietor Director Director Company Secretary Chief Financial Officer Travelling expenses 139.66 178.51 Membership No. 40016 b. Earnings in foreign exchange: Place : Mumbai Place : Mumbai Export of television software/ serials 79.16 109.42 Dated : 9th May, 2006 Dated : 9th May, 2006 c. Amount remitted during the financial year in foreign currency on account of dividends: The Company has not made any remittance in foreign currency on account of dividend and does not have information as to the extent to which remittances in foreign currency on account of dividends have been made by or on behalf of non-resident shareholders. The particulars of dividend paid to non-resident shareholders are as under:-

90 91 BALANCE SHEET ABSTRACT Information pursuant to the provisions of Part IV of the Schedule VI to the Companies Act, 1956

I. Registration Details Registration No. 11 –82802 State Code 11

Balance Sheet Date 31 03 2006

II. Capital Raised during the year (Amount in Rs. thousands) Public Issue Right Issue NI L NI L Bonus Issue Private Placement NI L NI L

III. Position of Mobilisation and deployment of Funds (Amount in Rs. thousands) Total Assets Total Liabilities 2550406 2550406

Sources of Funds Paid-up Capital Reserves & Surplus 130421 2374250 Secured Loans Unsecured Loans NIL NIL

Application of Funds Net Fixed Assets Investments 413300 1623859 Net Current Assets Miscellaneous Expenditure 513247 NIL Accumulated Losses Deferred Tax Liability (Net) NIL (4 5 7 3 5)

IV. Performance of Company (Amount in Rs. thousands)

Turnover Total Expenditure 2890657 2010835 Profit/(Loss) before Tax Profit/(Loss) after Tax 879822 594221 Earning per Share (in Rs.) Dividend rate (%) 9.15 150

V. Generic names of principal products of the company

Item Code No. (ITC Code) Not Applicable Product Description Television software / serials / feature films

92